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                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                                   FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
                            OF 1934 (FEE REQUIRED)

                   For the fiscal year ended March 31, 2001
                       Commission file number 000-07438
                              Acterna Corporation

            (Exact name of registrant as specified in its charter)


              DELAWARE                                     04-2258582
    (State or other jurisdiction of                     (I.R.S. Employer
    incorporation or organization)                   Identification Number)

                         3 New England Executive Park
                     Burlington, Massachusetts 01803-5087
              (Address of principal executive offices)(Zip code)

      Registrant's telephone number, including area code: (781) 272-6100

          Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, par value $0.01 per share

                               (Title of class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes X  No __.
                                              ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

At May 31 , 2001, the aggregate market value of the Common Stock of the
registrant held by non-affiliates was $183,346,152.00

At May 31, 2001, there were 191,319,866  shares of Common Stock of the
registrant outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the 2001 Annual Meeting of Stockholders are
incorporated by reference in Part III.

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ITEM 1.  BUSINESS.

GENERAL

Acterna Corporation (the "Company" or "Acterna"), formerly Dynatech Corporation,
was formed in 1959 and is a global communications equipment company focused on
network technology solutions.  The Company's operations are conducted primarily
by wholly owned subsidiaries located principally in the United States of America
and Europe with other operations, primarily sales offices, located in Asia and
Latin America.  The Company is managed in one business segment: communications
test.  The Company also has other subsidiaries that, in the aggregate, are not
reportable as a segment.

The information presented in Item 1 of this Report reflects the combined
businesses of the Company giving effect from the acquisition dates of: Wavetek
Wandel Goltermann, Inc. ("WWG"), which merged with one of the Company's
subsidiaries on May 23, 2000; and Superior Electronics Group, Inc., doing
business as Cheetah Technologies ("Cheetah"), which was acquired on August 23,
2000.  In addition, the information presented herein includes the effect of the
Company's decision to discontinue its industrial computing and communications
business segment.

The communications test business develops, manufactures and markets instruments,
systems and services used to test, deploy, manage and optimize communications
networks, equipment and services. In addition the Company operates two other
subsidiaries: AIRSHOW, Inc. and da Vinci Systems. AIRSHOW is the leading
provider of systems that deliver real-time news, information and flight data to
aircraft passengers. da Vinci manufactures systems that correct or enhance the
accuracy of color during the process of transferring film-based images to
videotape.

On May 23, 2000, the Company globalized its business by completing the merger of
one of its subsidiaries with WWG, a developer, manufacturer and marketer of
communications test instruments, systems, software and services in Europe and
Latin America (the "WWG Merger").  To finance the WWG Merger, the Company sold
12.5 million and 30.625 million newly-issued but unregistered shares of Common
Stock to Clayton, Dubilier & Rice Fund V Limited Partnership ("CDR Fund V") and
Clayton, Dubilier & Rice Fund VI Limited Partnership ("CDR Fund VI"),
respectively, for an aggregate purchase price of $172.5 million, and established
a new credit facility with a syndicate of lenders that provides for borrowings
of up to $860 million.  In addition, on June 30, 2000, the Company completed a
rights offering (the "Rights Offering") of 4.983 million newly-issued,
registered shares of Common Stock to stockholders of record on April 20, 2000
(other than CDR Fund V) at the same price per share that was paid by CDR Fund V
and CDR Fund VI.  The Rights Offering provided such stockholders with the
opportunity to reverse the diminution of their percentage equity ownership
interest in Acterna that resulted from the sale of common stock to CDR Fund V
and CDR Fund VI.

                                       2
<PAGE>

In May 2000, the Board of Directors of the Company approved a plan to divest the
Company's industrial computing and communications business segment, which
segment consists of the Company's ICS Advent and Itronix Corporation
subsidiaries.  In connection with such decision, the Company hired, prepared and
distributed a descriptive memorandum to qualified buyers and has received
letters of interest from certain buyers.  The Company is currently undergoing
presentations and data review with these potential buyers and expects to divest
these two subsidiaries, either separately or together, during the first half of
the 2002 fiscal year.  The businesses to be divested have been treated as
discontinued operations for accounting purposes.

The Company has its principal offices at 3 New England Executive Park,
Burlington, Massachusetts 01803.  Unless the context otherwise requires, the
"Company" or "Acterna" refers to Acterna Corporation and its subsidiaries. CDR
Fund V and CDR Fund VI, each of which are investment partnerships managed by
Clayton, Dubilier and Rice, Inc. ("CDR"), collectively hold approximately 81% of
the Company's Common Stock.

COMMUNICATIONS TEST SEGMENT

The Company develops, manufactures and markets a broad range of instruments,
systems, software and services used by communications service providers,
equipment manufacturers and service users to optimize the development,
manufacture, deployment and management of advanced communications networks. The
Company's extensive knowledge of communications technologies, combined with the
broad capabilities of its test and management products and services, enable the
Company to provide integrated test and management systems to its customers.
Integrated test and management systems enable its customers to simplify and
automate the deployment and maintenance of modern, converged networks by
combining multiple functions historically found in discrete instruments into a
single platform.

The Company's test and management systems currently support a wide array of
transmission technologies, protocols and standards, including:

 .  optical transmission, including SONET/SDH and DWDM equipment;

 .  broadband access technologies, including xDSL and HFC cable;

 .  data services, including IP, ATM and frame relay;

 .  wireless telephony and wireless broadband access; and

 .  traditional voice and time division multiplexed (TDMA) services.

The Company's products are designed to address the customers' desire to deploy
new technologies and provide new services rapidly, decrease operating and
maintenance costs and improve service reliability. The Company's products
address the challenges of deploying and managing a variety of technologies and
segments of a network including optical transmission systems, data services,
voice services, wireless service, cable services, and video delivery.

                                       3
<PAGE>

The Company markets to three primary groups of customers: communications service
providers, communications equipment manufacturers and service users.
Communications service providers rely on the Company's products and services to
configure, test and manage network elements and the traffic that runs across
them. Equipment manufacturers rely on these products to shorten the product
development phase and verify the proper functioning of their products during
final assembly and to monitor the performance of their products during
installation and maintenance in their customers' networks. Finally, service
users rely on these products to ensure the proper functioning of their
communications networks. The instruments, systems, and services described below
offer focused solutions to these customer-specific needs.

Instruments.  Instruments are devices that perform specific communications test
and monitoring functions. Designed to be mobile devices, these products assist
technicians in assessing the performance of devices and network segments or
verifying the integrity of the information being transmitted across the network.
These instruments incorporate high levels of intelligence and have user
interfaces that are designed to simplify the operation of these products and
decrease the training required to use them. The Company currently markets more
than 100 instruments, including products to address the performance of optical
transmission equipment, broadband access technologies (xDSL and cable modems),
data, voice, wireless and cable networks. The Company's instruments are used by
service providers, equipment manufacturers and service users.

Systems.  The Company's systems are test and management devices that reside in
its customers' communication networks. They can be accessed remotely using an
intelligent terminal and allow multiple users to simultaneously perform specific
communications test and management functions. Typically, these systems consist
of hardware and software components that are derived from core instrument
products. Using an integrated test and management system, the customers are able
to analyze a variety of network elements, transmission technologies and
protocols from a single console, thereby simplifying the process of deploying,
provisioning and managing network equipment and services. From a centralized
location, technicians in their network operations center can have access to the
test systems within the network and perform simultaneous test and monitoring
functions on one or more systems, either manually or in an automated fashion.
These capabilities decrease the need for technicians to make on-site service
calls and allow service providers to respond to potential network faults
proactively. In tandem with the core instrument products, the Company's software
components help assess the quality of the services, or QoS, delivered.  QoS
refers to the achievement of specific performance benchmarks defined by
agreements between communications service providers and the customer.  These
agreements are commonly called service level agreements, or SLAs, and specify
such things as network availability, maximum allowable transmission latencies,
guaranteed levels of bandwidth or maximum acceptable data loss.  The Company's
applications allow service providers and users to tracks SLAs more readily.
Customers typically begin using the Company's instruments for initial
deployments and start using systems within a year of the completion of
deployment. By reusing the technology from its instrument

                                       4
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products, the Company is able to enter new markets rapidly with new test and
monitoring functionality that is very similar, in scope, to the existing
instrument functions. The Company expects that a growing proportion of sales
will be derived from its systems products.

Services.  The Company offers a range of product support and professional
services geared to address comprehensively the customers' requirements. The
Company provides repair, calibration and software support services for its
products and also provides technical assistance on a global basis for a wide
array of test equipment. In addition, the Company offers customers training
services that are aimed at both product and technology areas. Project management
services are an integral part of the professional services offerings. These
services are provided in conjunction with system integration projects that
include installation and implementation services. Custom software and interface
development are key offerings that build upon  process consulting and software
development expertise. The Company provides both product and process consulting
to its customers.


OTHER SUBSIDIARIES

AIRSHOW, Inc.

AIRSHOW is the leading supplier of inflight video information systems and
services for passengers of private and commercial aircraft.  The Company markets
AIRSHOW products to airlines, aircraft manufacturers, avionics installation
centers and owners and operators of corporate aircraft. AIRSHOW's key products
are:

 .  The Airshow moving map system, which provides passengers with a graphical
   representation of the aircraft's location, heading, altitude and other
   information displayed in real time;

 .  The Airshow Network, which delivers to passengers of private aircraft text-
   based network broadcasts of stock quotes, news briefs, business updates, and
   customized financial reports; AIRSHOW currently has agreements to provide up-
   to-the-minute content from CNN, Wall Street Journal Interactive, Bloomberg,
   SportsTicker and Intellicast weather products; and

 .  Airshow TV, which provides direct broadcast satellite TV to corporate
   aircraft.

da Vinci Systems

da Vinci manufactures and sells digital color correction systems used by video
post-production and commercial production facilities to correct and enhance
color saturation levels as video images are transferred from film to video tape
for editing and distribution. da Vinci systems are sold worldwide through its
direct sales force in the United States, as well as in conjunction with
manufacturers of related products.

                                       5
<PAGE>

da Vinci has benefited from the transition from analog to digital production
systems and digital high-definition television, or HDTV, broadcast standards.
Many post-production facilities worldwide have begun retooling in advance of the
widespread availability of HDTV programming by purchasing new equipment such as
HDTV-compatible color enhancement systems such as da Vinci's new "2K" product.

No class of products or services accounted for 10% or more of the Company's
consolidated revenue in any of the last three fiscal years.


MANUFACTURING

The Company manufactures a portion of its products and outsources to third
parties a portion of its manufacturing activities, such as the assembly of
printed circuit boards and the fabrication of some mechanical parts. The Company
generally performs its own final assembly and testing of its products. The
Company operates 14 manufacturing and assembly facilities worldwide. Twelve of
these facilities are certified as ISO 9002-compliant, and 10 are certified ISO
9001 facilities. In addition, in 1996, the Company received ISO 14001
certification, which relates to environmental compliance in Germany.

The components used to build the Company's products are generally available from
a number of suppliers. The Company relies on a number of limited-source
suppliers for certain specific components and parts. Although the Company has
entered into long-term purchasing contracts with some of these suppliers, the
Company cannot assure that these suppliers will be able to meet the Company's
needs or that component shortages will not be experienced. If the Company was
required to locate new suppliers or additional sources of supply, a disruption
in operations could occur or additional costs could be incurred in procuring
required materials.


COMPETITION

The markets for communications test products and services are rapidly evolving
and highly competitive. The principal competitive factors affecting the business
include:

 .  quality and breadth of product offerings;

 .  adaptability to evolving technologies and standards;

 .  speed of new product introductions;

 .  depth and breadth of customer relationships;

 .  price and financing terms;

 .  research and design capabilities;

 .  scale of installed base;

 .  technical support training and customer service and training;

 .  strength of distribution channels; and

 .  product scalability and flexibility.

                                       6
<PAGE>

The Company believes it competes favorably with respect to the above factors.
Its principal competitors in the communications test and management markets
include Agilent Technologies, Tektronix and Anritsu. The Company also competes
with a number of other companies that offer products that address discrete
portions of its markets, including Spirent, Digital Lightwave, EXFO Electro-
Optical Engineering and Sunrise Telecom, Inc. Some of these competitors have
greater sales, marketing, research and financial resources than the Company
does. In addition, new competitors with significant market presence and
financial resources may enter markets that the Company competes in and reduce
its market share.


CUSTOMERS

The Company markets its products to three primary groups of customers:
communications service providers, equipment manufacturers and service users.

Communications Service Providers

Communications service providers offer telecommunications, wireless and,
increasingly, data communication services to end users, enterprises or other
service providers. Typically, communications service providers utilize a variety
of network equipment and software to originate, transport and terminate
communications sessions. Communications service providers rely on the Company's
products and services to configure, test and manage network elements and the
traffic that runs across them. Also, the Company's products help to ensure
smooth operation of networks and increase the reliability of services to
customers.

The Company's products and services are sold to virtually all inter-exchange
carriers, or IXCs; incumbent local exchange carriers, or ILECs; competitive
local exchange carriers, or CLECs; internet service providers, or ISPs;
integrated communications providers, or ICPs; wireless network operators; cable
service providers; international post, telephone and telegraph companies, or
PTTs; and other service providers.


Equipment Manufacturers

Communications equipment manufacturers design, develop, install and maintain
voice, data and video communications equipment. These products include switches,
routers, voice gateways, cellular base stations, cable headends, optical access
and multiplexing devices and other types of communications systems. Network
equipment manufacturers rely on the Company's products to verify the proper
functioning of their products during final assembly and testing. Increasingly,
because communications service providers are choosing to outsource installation
and maintenance functions to the equipment manufacturers themselves, equipment
manufacturers are using the Company's instruments and systems to assess the
performance of their products during installation and maintenance of a
customer's network.

                                       7
<PAGE>

Service Users

The Company also sells test and management instruments, systems, and services to
large corporate customers, government operators and educational institutions.

AIRSHOW products are marketed to airlines, aircraft manufacturers, avionics
installation centers and owners and operators of corporate aircraft.

da Vinci systems are sold to video post-production and commercial production
facilities.

None of the Company's customers represented more than 10 percent of its sales
during fiscal 2001.  The Company is not dependent upon any one customer, or
group of customers, to the extent that the loss of such customers would have a
material adverse effect on the Company.


SALES, MARKETING AND CUSTOMER SUPPORT

The Company's products and services are primarily sold through its direct sales
force. In addition, the Company's products and services are sold through third
party distributors and sales representatives in areas where direct sales efforts
are less developed. Through  distributors, sales representatives and its direct
sales force, the Company has a presence in over 80 countries. In addition, the
Company uses the Internet, advertisements in the trade press, direct mail,
seminars, trade shows and quarterly newsletters to raise awareness of its
products.

The Company's sales and marketing staff consists primarily of engineers and
technical professionals. They undergo extensive training and ongoing
professional development and education. The skill level of the sales and
marketing staff has been instrumental in building longstanding customer
relationships. In addition, the Company's frequent dialogue with its customers
provides it with valuable input on systems and features they desire in future
products. The Company's  consultative sales approach and product and market
knowledge differentiates its sales force from those of its primary competitors.

The local sales forces are highly knowledgeable of their respective markets,
customer operations and strategies, and regulatory environments. In addition,
the representatives' familiarity with local languages and customs enables them
to build close relationships with the Company's customers.

The Company provides installation, repair and training services to enable its
customers to improve performance of their networks. Service centers are located
near many of the Company's major customers. The Company also offers on-line
support services to supplement its on-site application engineering support.
Customers can also access the Company's products remotely through its technical
assistance center.

                                       8
<PAGE>

SEASONALITY; BACKLOGS

As a result of purchasing patterns of the Company's telecommunications
customers, which tend to place large orders periodically, typically at the end
of the Company's second and fourth fiscal quarters, the Company expects that its
results of operations may vary on a quarterly basis, as they have in the past.

The Company estimates that its backlog of orders at March 31, 2001 and 2000 was
approximately $392.2 million and $180.4 million, respectively. The increase is a
result of additional bookings due to the WWG Merger and the acquisition of
Cheetah. The Company expects it will be able to fill all such orders during
fiscal 2002.


PRODUCT DEVELOPMENT

For the year ended March 31, 2001, the Company invested approximately $150.1
million in research and development activities of which approximately $131.5
million was applied to the Company's communications test segment.

The market for the Company's products and services is characterized by rapidly
changing technologies, new and evolving industry standards and protocols and
product and service introductions and enhancements that may render the Company's
existing offerings obsolete or unmarketable. Automation in the Company's
targeted markets for communications test equipment or a shift in customer
emphasis from employee-operated communications test to automated test and
monitoring systems could likewise render the Company's existing product
offerings obsolete or unmarketable, or reduce the size of one or more of its
targeted markets. In particular, incorporation of self-testing functions in the
equipment currently addressed by the Company's communications test instruments
could render some of the Company's offerings redundant and unmarketable.  The
development of new, technologically advanced products is a complex and uncertain
process requiring the accurate anticipation of technological and market trends
and the incurrence of substantial research and development costs.


INTERNATIONAL

The Company maintains manufacturing facilities and sales subdivisions or
branches for its communications test business in major countries in Europe, and
sales subdivisions in Latin America and Asia and has distribution agreements in
other countries where sales volume does not warrant a direct sales organization.
The Company's foreign sales from continuing operations (excluding WWG in fiscal
2000 and 1999 and including exports from North America directly to foreign
customers) were approximately 19%, 14%, and 41% of consolidated net sales in
fiscal 1999, 2000 and 2001, respectively.  Accordingly, the Company's domestic
sales from continuing operations were 81%, 86% and 59% of consolidated net sales
in fiscal 1999, 2000 and 2001, respectively.

                                       9
<PAGE>

Because the Company sells its products worldwide, the Company's business is
subject to risks associated with doing business internationally.  In addition,
many of the Company's manufacturing facilities and suppliers are located outside
the United States.  Accordingly, the Company's future results could be harmed by
a variety of factors, including changes in foreign currency exchange rates,
changes in a specific country's or region's political or economic conditions,
particularly in emerging markets, trade protection measures and import or export
licensing requirements, and potentially negative consequences from changes in
tax laws and other regulatory requirements.


PATENTS AND PROPRIETARY RIGHTS

The Company relies primarily on trade secrets, trademark laws, confidentiality
procedures and contractual restrictions to establish and protect its proprietary
rights. The Company owns a number of U.S. and foreign patents and patent
applications that are collectively important to its business. The Company does
not believe, however, that the expiration of any patent or group of patents
would materially affect its business.


GOVERNMENT REGULATION AND INDUSTRY STANDARDS AND PROTOCOLS

The Company designs its products to comply with a significant number of industry
standards and regulations, some of which are evolving as new technologies are
deployed. In the United States, these products must comply with various
regulations defined by the U.S. Federal Communications Commission and
Underwriters Laboratories as well as industry standards established by Telcordia
Technologies, Inc., formerly Bellcore, and the American National Standards
Institute. Internationally, these products must comply with standards
established by the European Committee for Electrotechnical Standardization, the
European Committee for Standardization, the European Telecommunications
Standards Institute, telecommunications authorities in various countries as well
as with recommendations of the International Telecommunications Union. The
failure of the Company's products to comply, or delays in compliance, with the
various existing and evolving standards could negatively impact the ability to
sell  products.


ENVIRONMENTAL MATTERS

Federal, state and local laws or regulations concerning the discharge of
materials into the environment have not had and, under present conditions, the
Company does not foresee that they will have, a material adverse effect on
capital expenditures, earnings or the competitive position of the Company.


EMPLOYEES

As of March 31, 2001, the Company employed approximately 5,300 persons in
continuing operations. Some of the European employees are members of

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a workers' council, principally due to applicable legal requirements in the
jurisdictions in which they work. However, none of the Company's other employees
are represented by labor unions and the Company believes its employee relations
are good.


ITEM 2.  PROPERTIES.

The following table describes the Company's largest design and manufacturing
facilities.  The Company also has sales offices and facilities in Europe, South
America and elsewhere.

<TABLE>
<CAPTION>
            Location                                 Square   Title
            --------                                 ------   -----
                                                     Feet
                                                     ----
            <S>                                      <C>      <C>
            Eningen, Germany                         779,000  Owned
            Germantown, Maryland                     272,000  Leased
            Indianapolis, Indiana                    140,000  Leased
            Bradenton, Florida                       124,000  Leased
            Research Triangle Park, North Carolina    93,100  Leased
            Plymouth, United Kingdom                  86,400  Owned
            San Diego, California                     62,368  Leased
            Tustin, California                        52,000  Leased
            Munich, Germany                           51,000  Leased
            Research Triangle Park, North Carolina    50,800  Leased
            Kirkland, Washington                      50,500  Leased
</TABLE>

The Company believes its facilities are in good operating condition.  In
addition, the Company leases approximately 231,000 square feet of manufacturing
facilities related to discontinued operations.


ITEM 3.  LEGAL PROCEEDINGS.

The Company is a party to several pending legal proceedings and claims. Although
the outcome of such proceedings and claims cannot be determined with certainty,
the Company's management is of the opinion that the final outcome should not
have a material adverse effect on the Company's operations or financial
position.

In 1994, the Company sold its radar detector business to Whistler Communications
of Massachusetts.  On June 27, 1996, Cincinnati Microwave, Inc. ("CMI"), filed
an action in the United States District Court for the Southern District of Ohio
against the Company and Whistler Corporation, alleging willful infringement of
CMI's patent for a mute function in radar detectors.  On September 26, 2000, the
Federal District Court Judge granted the Company's motion for partial summary
judgment on the affirmative defense of laches, and the case was administratively
terminated.  The decision was appealed to the Court of Appeals for the Federal
Circuit by CMI on October 24, 2000.  The appeal has been fully briefed and the
Company is awaiting a hearing date.  The Company's management believes the final
outcome should not have a material adverse effect on the Company's operations or
financial position.

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ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of the Company's stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of fiscal 2001.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
         MATTERS.

The Company's common stock is traded on the NASDAQ National Market under the
symbol "ACTR". From May 21, 1998 to November 8, 2000, the common stock was
traded on the over-the-counter market under the symbol "DYNA". Since November 9,
2000, the common stock has been trading on the NASDAQ National Market. As of
March 30, 2001, there were 581 registered holders of the common stock and the
price of the common stock on the NASDAQ was $6.00. The following table sets
forth the high and low sales prices of the Company's common stock on the over-
the-counter market and the NASDAQ National Market for each quarterly period
within the two most recent fiscal years.

<TABLE>
<CAPTION>
         Quarter Ended            High          Low
         -------------            ----          ---
         <S>                    <C>           <C>
         March 31, 2001         $21.438       $ 6.000
         December 31, 2000       29.125         7.813
         September 30, 2000      41.375        16.437
         June 30, 2000           20.250         8.000
         March 31, 2000          15.937         6.875
         December 31, 1999        8.000         4.875
         September 30, 1999       5.031         3.437
         June 30, 1999            4.062         3.125
</TABLE>


Since April 1, 1995, the Company has not declared or paid cash dividends to the
holders of common stock.  The Company intends to retain earnings for use in the
operation and expansion of its business.  In addition, certain restrictions in
the Company's credit agreements limit the Company's ability to pay cash
dividends.

ITEM 6.  SELECTED FINANCIAL DATA.

The information requested by this Item is attached as Appendix A.

ITEM 7.  MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION.

The information requested by this Item is attached as Appendix B.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

                                       12
<PAGE>

The information requested by this Item is included in Appendix B.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information requested by this Item is attached as Appendix C.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

None.


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Reference is made to the information responsive to Items 401 and 405 of
Regulation S-K contained in the Company's definitive Proxy Statement relating to
its fiscal 2001 Annual Meeting of Stockholders which will be filed with the U.S.
Securities and Exchange Commission within 120 days after the close of the
Company's fiscal year ended March 31, 2001, pursuant to Rule 14a-6(b) under the
Securities Exchange Act of 1934, as amended; said information is incorporated
herein by reference.


ITEM 11. EXECUTIVE COMPENSATION.

Reference is made to the information responsive to Item 402 of Regulation S-K
contained in the Company's definitive Proxy Statement relating to its fiscal
2001 Annual Meeting of Stockholders which will be filed with the U.S. Securities
and Exchange Commission within 120 days after the close of the Company's fiscal
year ended March 31, 2001, pursuant to Rule 14a-6(b) under the Securities
Exchange Act of 1934, as amended; said information is incorporated herein by
reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Reference is made to the information responsive to Item 403 of Regulation S-K
contained in the Company's definitive Proxy Statement relating to its fiscal
2001 Annual Meeting of Stockholders which will be filed with the U.S. Securities
and Exchange Commission within 120 days after the close of the Company's fiscal
year ended March 31, 2001, pursuant to Rule 14a-6(b) under the Securities
Exchange Act of 1934, as amended; said information is incorporated herein by
reference.

                                       13
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Reference is made to the information responsive to Item 404 of Regulation S-K
contained in the Company's definitive Proxy Statement relating to its fiscal
2001 Annual Meeting of Stockholders which will be filed with the U.S. Securities
and Exchange Commission within 120 days after the close of the Company's fiscal
year ended March 31, 2001, pursuant to Rule 14a-6(b) under the Securities
Exchange Act of 1934, as amended; said information is incorporated herein by
reference.


ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM
         8-K.

(a)  (1) Financial statements

The following financial statements and schedules of the Company are included as
Appendix C to this Report.

     I.   Report of Independent Accountants.
     II.  Consolidated Balance Sheets-March 31, 2001 and 2000.
     III. Consolidated Statements of Income-Fiscal Years ended March 31, 2001,
          2000, and 1999.
     IV.  Consolidated Statements of Stockholders' Equity (Deficit)-Fiscal Years
          ended March 31, 2001, 2000, and 1999.
     V.   Consolidated Statements of Cash Flows-Fiscal Years ended March 31,
          2001, 2000, and 1999.
     VI.  Notes to Consolidated Financial Statements.

     (2)  Financial Statements schedule - Schedule II

Schedules other than those listed above have been omitted because they are
either not required or not applicable or because the required information has
been included elsewhere in the financial statements or notes thereto.

(b)  Reports on Form 8-K

     I.   Current Report on Form 8-K concerning the Company's press release
          regarding its third quarter results of operations, filed with the SEC
          on February 14, 2001.

(c)  Exhibits

The exhibits that are filed with this report or that are incorporated herein by
reference are set forth in Appendix D.

                                       14
<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                        ACTERNA CORPORATION

June 29, 2001                      By: /s/ Ned C. Lautenbach
                                       -----------------------
                                   Chairman, President and
                                   Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<S>                                  <C>                                  <C>
/s/ Ned C. Lautenbach                Chairman of the Board, President     June 29, 2001
--------------------------------     and Chief Executive Officer,
Ned C. Lautenbach                    Director

/s/ Allan M. Kline                   Corporate Vice President,            June 29, 2001
--------------------------------     Director, Chief Financial
Allan M. Kline                       Officer, and Treasurer
                                     (Principal Financial Officer)



/s/ Robert W. Woodbury, Jr.          Corporate Vice President,            June 29, 2001
--------------------------------     Controller (Principal
Robert W. Woodbury, Jr.              Accounting Officer)


/s/ John R. Peeler                   Director                             June 29, 2001
--------------------------------
John R. Peeler

/s/ Brian D. Finn                    Director                             June 29, 2001
--------------------------------
Brian D. Finn

/s/ Marvin L. Mann                   Director                             June 29, 2001
--------------------------------
Marvin L. Mann

/s/ William O. McCoy                 Director                             June 29, 2001
--------------------------------
William O. McCoy

/s/ Victor A. Pelson                 Director                             June 29, 2001
--------------------------------
Victor A. Pelson

/s/ Brian H. Rowe                    Director                             June 29, 2001
--------------------------------
Brian H. Rowe

/s/ Richard J. Schnall               Director                             June 29, 2001
--------------------------------
Richard J. Schnall

/s/ Peter M. Wagner                  Director                             June 29, 2001
--------------------------------
Peter M. Wagner
</TABLE>


                                       15
<PAGE>

                                                                      APPENDIX A

                Selected Historical Consolidated Financial Data

The following tables set forth selected consolidated historical financial data
of the Company for the five fiscal years ended March 31, 2001 which, as of March
31, 2001 and 2000 and for the three years in the period ended March 31, 2001,
have been derived from, and should be read in conjunction with, the audited
historical Consolidated Financial Statements, and related notes thereto, of the
Company contained herein.

<TABLE>
<CAPTION>
                                                                           Years Ended March 31,
                                                     2001*          2000          1999           1998           1997
                                                   --------       --------      --------       --------       --------
                                                                          (Amounts in thousands)
<S>                                              <C>             <C>            <C>            <C>            <C>
RESULTS OF OPERATIONS
Net sales                                        $1,167,815      $ 453,239      $ 329,532      $ 317,955      $ 284,070
Cost of sales                                       468,542        157,090        108,618        103,923         90,401
                                                 ----------      ---------      ---------      ---------      ---------
Gross profit                                        699,273        296,149        220,914        214,032        193,669

Selling, general & administrative expense           439,404        156,499        113,469        106,328         95,203
Product development expense                         150,061         61,172         42,472         42,919         39,037
Recapitalization and other related costs              9,194         27,942         40,767            ---            ---
Nonrecurring charges                                    ---            ---            ---            ---          5,063
Purchased incomplete technology                      56,000            ---            ---            ---            ---
Amortization of intangibles                         109,788          8,789          2,726          2,357          3,882
                                                 ----------      ---------      ---------      ---------      ---------
Operating income (loss)                             (65,174)        41,747         21,480         62,428         50,484

Interest expense                                   (102,066)       (51,916)       (46,178)        (1,184)          (679)
Interest income                                       3,155          2,354          3,392          3,013          2,675
Other income (expense), net                          (5,455)           (68)        15,703            551            540
                                                 ----------      ---------      ---------      ---------      ---------
Income (loss) from operations before
  income taxes                                     (169,540)        (7,883)        (5,603)        64,808         53,020

Provision (benefit) for income taxes                 (8,382)        (1,169)           (69)        26,521         24,092
                                                 ----------      ---------      ---------      ---------      ---------
Income (loss) from continuing operations           (161,158)        (6,714)        (5,534)        38,287         28,928
Discontinued operations, net of income
  taxes                                                 ---         12,726         11,979          3,489            921
                                                 ----------      ---------      ---------      ---------      ---------
Net income (loss) before extraordinary item        (161,158)         6,012          6,445         41,776         29,849
Extraordinary item, net of income tax
 benefit of $6,603                                  (10,659)           ---            ---            ---            ---
                                                 ----------      ---------      ---------      ---------      ---------
Net income (loss)                                $ (171,817)     $   6,012      $   6,445      $  41,776      $  29,849
                                                 ==========      =========      =========      =========      =========
Net income (loss) per common share-basic:
  Continuing operations                          $    (0.87)     $   (0.05)     $   (0.04)     $    1.87      $    1.38
  Discontinued operations                               ---           0.09           0.09           0.17           0.04
  Extraordinary loss                                  (0.06)           ---            ---            ---            ---
                                                 ----------      ---------      ---------      ---------      ---------
                                                 $    (0.93)     $    0.04      $    0.05      $    2.04      $    1.42
                                                 ==========      =========      =========      =========      =========
Net income (loss) per common share-diluted:
  Continuing operations                          $    (0.87)     $   (0.05)     $   (0.04)     $    1.80      $    1.32
  Discontinued operations                               ---           0.09           0.09           0.16           0.04
  Extraordinary loss                                  (0.06)           ---            ---            ---            ---
                                                 ----------      ---------      ---------      ---------      ---------
                                                 $    (0.93)     $    0.04      $    0.05      $    1.96      $    1.36
                                                 ==========      =========      =========      =========      =========
Weighted average number of shares:
  Basic                                             183,881        148,312        129,596         20,493         20,987
  Diluted                                           183,881        148,312        129,596         21,272         21,997
                                                 ==========      =========      =========      =========      =========
BALANCE SHEET DATA
 Net working capital                             $  177,947      $  52,262      $  55,498      $ 117,791      $  80,394
 Total assets                                    $1,343,140      $ 414,838      $ 348,104      $ 288,130      $ 249,010
 Long-term debt                                  $1,056,383      $ 572,288      $ 504,151      $      83      $   5,226
 Stockholders' equity (deficit)                  $  (80,977)     $(296,675)     $(316,440)     $ 202,119      $ 160,686
 Shares of stock outstanding                        190,953        122,527        120,665         16,864         16,793
 Stockholders' equity (deficit) per share        $    (0.42)     $   (2.42)     $   (2.62)     $   11.99      $    9.57
</TABLE>


* The Results of Operations for fiscal 2001 include the results of operations of
Wavetek Wandel Goltermann, Inc. since May 23, 2000, the date of its acquisition,
and the results of operations of Cheetah Technologies since August 23, 2000, the
date of its acquisition.

                                      A-1
<PAGE>

                                                                      APPENDIX B

Management Discussion and Analysis of Financial Condition and Results of
Operations


The following discussion of the results of operations, financial condition and
liquidity of the Company should be read in conjunction with the information
contained in the consolidated financial statements and notes thereto included
elsewhere in this Form 10-K.  These statements have been prepared in conformity
with generally accepted accounting principles and require management to make
estimates and assumptions that affect amounts reported and disclosed in the
financial statements and related notes.  Actual results could differ from these
estimates.

Unless otherwise noted, the information presented in this Appendix B reflects
the business of the Company and its subsidiaries, including the results of
operations of the businesses the Company has acquired during fiscal 2001.
Wavetek Wandel Goltermann, Inc. ("WWG")'s results of operations are included in
the statements of operations since May 23, 2000; Cheetah Technologies
("Cheetah")'s results of operations are included since August 23, 2000. Applied
Digital Access, Inc. ("ADA")'s results of operations are included since November
3, 1999. The statements contained in this report (other than the Company's
consolidated financial statements and other statements of historical fact)
include forward-looking statements, as described below in greater detail in
"Forward-Looking Statements."


OVERVIEW

The Company reports its results of continuing operations in one business segment
that the Company refers to as communications test. This segment develops,
manufactures and markets instruments, systems, and services to test, deploy,
manage and optimize communications networks, equipment and services. The Company
also has other subsidiaries that, in the aggregate, are not reportable as a
segment ("Other Subsidiaries"). These Other Subsidiaries include AIRSHOW, Inc.,
a leading provider of systems that deliver real-time news, information and
flight data to aircraft passengers; da Vinci Systems, Inc. which manufactures
systems that correct or enhance the accuracy of color during the process of
transferring film-based images to videotape; and DataViews Corporation, which
was sold in June 2000.

The Company's controlling stockholders are Clayton, Dubilier & Rice Fund V
Limited Partnership ("CDR Fund V") and Clayton, Dubilier & Rice Fund VI Limited
Partnership ("CDR Fund VI"), (collectively the "CDR Funds").  The CDR Funds are
managed by Clayton, Dubilier & Rice, Inc. ("CDR"), an investment management
firm, and collectively hold approximately 81% of the outstanding shares of
common stock of the Company.

                                      B-1
<PAGE>

On August 23, 2000, the Company acquired substantially all the assets and
specified liabilities of Superior Electronics Group, Inc., a Florida corporation
doing business as Cheetah Technologies ("Cheetah"), for a purchase price of
$171.5 million. Cheetah is a leading global supplier of automated test,
monitoring, and management systems for cable television and telecommunications
networks.

On May 23, 2000, the Company completed the merger (the "WWG Merger") of one of
its subsidiaries with Wavetek Wandel Goltermann, Inc. ("WWG"), a developer,
manufacturer and marketer of communications test instruments, systems, software
and services in Europe (the "WWG Merger"), for a purchase price of $402.0
million.  As a result of the WWG Merger, WWG became an indirect, wholly-owned
subsidiary of Acterna.

To finance the WWG Merger, the Company sold 12.5 million and 30.625 million
newly-issued, but unregistered shares of its common stock to CDR Fund V and CDR
Fund VI, respectively, for an aggregate purchase price of $172.5 million. In
addition, on June 30, 2000, the Company sold in a rights offering (the "Rights
Offering") 4.983 million newly-issued, registered shares of common stock to
stockholders of record on April 20, 2000 (other than CDR Fund V) at the same
price per share that was paid by the CDR Funds.  The Rights Offering provided
such stockholders with the opportunity to reverse the diminution of their
percentage equity ownership interest in the Company that resulted from the sale
of common stock to the CDR Funds.

In connection with the WWG Merger, the Company entered into a new credit
facility for $860 million with a syndicate of lenders. The proceeds were used to
finance the WWG Merger, refinance WWG and Acterna debt and provide for
additional working capital and borrowing capacity.

In May 2000, the Board of Directors approved a plan to divest the industrial
computing and communications business segment, which segment consists of the
Company's ICS Advent and Itronix Corporation subsidiaries. In connection with
such decision, the Company hired, prepared and distributed a descriptive
memorandum to qualified buyers and has received letters of interest from certain
buyers.  The Company is currently undergoing presentations and data review with
these potential buyers and expects to divest these two subsidiaries, either
separately or together, during the first half of the 2002 fiscal year.  The
businesses to be divested have been treated as discontinued operations for
accounting purposes. The Statement of Cash Flows for fiscal years ended March
31, 2001, 2000 and 1999 have not been reclassified for the discontinued
operations.

The  results of operations of the discontinued businesses for the fiscal year
ended March 31, 2001 have been deferred and included in the balance sheet at
March 31, 2001, within net assets held for sale within non-current assets.

Management anticipates net operating losses from the discontinued operations to
continue through  the first half of fiscal 2002, at which time the Company
anticipates having sold these businesses. The pretax operating losses for the
segment for fiscal year ended March 31, 2001 was $14.5 million, of which $10.4
million was related to amortization of intangibles.  Management believes that
the net proceeds from the disposition of these companies will exceed the
carrying amount of the net assets and the operating losses

                                      B-2
<PAGE>

deferred through the date of disposition. Accordingly, the anticipated net gain
from the disposal of the segment will not be reflected in the statements of
operations until realized.

In accordance with the terms of the Company's new Senior Secured Credit
Facility, the proceeds from the sale of assets, including those of the
discontinued operations, must be used to repay any outstanding term loans, to
the extent the proceeds received are less than the total balance of the
outstanding term loans.

Seasonality

As a result of purchasing patterns of the Company's telecommunications
customers, which tend to place large orders periodically, typically at the end
of the Company's second and fourth fiscal quarters, the Company expects that its
results of operations may vary on a quarterly basis, as they have in the past.


Product Development

For the year ended March 31, 2001, the Company invested approximately $150.1
million in research and development activities of which $131.5 million was
applied to the communications test segment.

The market for the Company's products and services is characterized by rapidly
changing technologies, new and evolving industry standards and protocols and
product and service introductions and enhancements that render the Company's
existing offerings obsolete or unmarketable. Automation in addressed markets for
communications test equipment or a shift in customer emphasis from employee-
operated communications test to automated test and monitoring systems could
likewise render the Company's existing product offerings obsolete or
unmarketable, or reduce the size of one or more of its addressed markets. In
particular, incorporation of self-testing functions in the equipment currently
addressed by the Company's communications test instruments could render product
offerings redundant and unmarketable.  The development of new, technologically
advanced products is a complex and uncertain process requiring the accurate
anticipation of technological and market trends and the incurrence of
substantial research and development costs.


RECENT ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS DURING FISCAL 2001
-------------------------------

Wavetek Wandel Goltermann, Inc.

On May 23, 2000, the Company merged one of its wholly owned subsidiaries with
WWG for consideration of $402.0 million, which  includes $14.2 million of
acquisition costs. The WWG Merger was accounted for using the purchase method of
accounting.  As part of a fair value exercise, the Company increased the
carrying value of acquired inventory by $35 million in order to record this
inventory at its fair value, increased the carrying value of acquired land and
buildings by $27 million to record them at fair value, and determined the

                                      B-3
<PAGE>

fair value of acquired incomplete technology to be $51 million. This purchased
incomplete technology had not reached technological feasibility, had no
alternative future use and was written off to the income statement during the
year. The WWG Merger generated approximately $488.9 million of excess purchase
price which, based upon an independent valuation, was allocated to other
intangibles on a basis as follows: $162.2 million to core technology (which is
being amortized over six years), $45.2 million to workforce (which is being
amortized over five years), and $6.8 million to backlog (which is being
amortized over 12 months). The unallocated excess purchase price or goodwill of
$274.8 million is being amortized over six years.


Superior Electronics Group, Inc., doing business as Cheetah Technologies

On August 23, 2000, the Company acquired Cheetah for a purchase price of $171.5
million.  The acquisition was accounted for using the purchase method of
accounting.  As part of a fair value exercise, the Company increased the
carrying value of the acquired inventory by $750 thousand to reflect its fair
value, and determined the  fair value  of acquired incomplete technology to be
$5.0 million.  This purchased incomplete technology had not reached
technological feasibility,  had no alternative future use and was written off to
the income statement during the year.  The acquisition generated approximately
$143.9 million of excess purchase price which was allocated to other intangibles
on a preliminary basis as follows:  $48.3 million to core technology (which is
being amortized over six years), $3.9 million to workforce (which is being
amortized over five years), $3.3 million to backlog (which is being amortized
over 12 months), and $0.7 million to trademarks (which is being amortized over 6
years).  The unallocated excess purchase price or goodwill of $87.7 million is
being amortized over six years.

The Company funded the purchase price with borrowings of $100 million under its
Senior Secured Credit Facility (See notes to the Consolidated Financial
Statements: Note I. Notes Payable and Debt) and approximately $65.7 million from
its existing cash balances.

In connection with the Cheetah acquisition, options to purchase shares of
Cheetah were converted into options to purchase shares of Acterna common stock.
The fair value as of the announcement date of the acquisition of all options
converted was $5.8 million using an option-pricing model. A total of $6.7
million relates to the unearned intrinsic value of unvested options as of the
closing date of the acquisition, and has been recorded as deferred compensation
to be amortized over the remaining vesting period of the options (the weighted
average vesting period is approximately three years).


DIVESTITURES DURING FISCAL 2001

DataViews Corporation

In June 2000, the Company sold the assets and liabilities of DataViews
Corporation ("DataViews"), a subsidiary that manufactures software for
graphical-user-interface applications, to GE Fanuc for $3.5 million.  The sale
generated a loss of approximately $0.1 million.  Prior to the sale, the

                                      B-4
<PAGE>

results of DataViews were included in the Company's financial statements within
"Other Subsidiaries".


OTHER ACQUISITIONS AND DIVESTITURES

The Company has, in the normal course of business, entered into acquisitions
and divestitures of small companies that, in the aggregate, do not have a
material impact on the financial results of the Company.


RESULTS OF OPERATIONS

Fiscal 2001 Compared to Fiscal 2000 on a Consolidated Basis

Sales.  For the fiscal year ended March 31, 2001 consolidated sales from
continuing operations increased $714.6 million to $1.17 billion as compared to
$453.2 million for the fiscal year ended March 31, 2000. The increase occurred
primarily within the communications test segment. Of the $714.6 million
increase, $702.8 million related to the communications test segment of which
15.0% resulted from core growth, 3.8% from additional sales at ADA; 77.2% from
the WWG Merger; and 4.0% from the acquisition of Cheetah.

The Company's international sales (excluding WWG in fiscal 2000 and including
exports from North America directly to foreign customers) from continuing
operations were $473.2 million or 40.5% of consolidated sales for the fiscal
year ended March 31, 2001, as compared to $65.8 million or 14.5% of consolidated
sales for the fiscal year ended March 31, 2000 due primarily to the WWG Merger.
WWG's operations are principally in Europe with significant sales offices in
Asia and Latin America, as well as in the United States.

Gross Profit.  Consolidated gross profit from continuing operations increased
$403.1 million to $699.3 million or 59.9% of consolidated sales for the fiscal
year ended March 31, 2001 as compared to $296.2 million or 65.3% of consolidated
sales for the fiscal year ended March 31, 2000.  Included in the fiscal 2001
gross profit is a purchase accounting charge of $35.7 million related to the
amortization of inventory step-up as a result of the acquisitions of WWG and
Cheetah.  Excluding this step-up, gross profit was $735.0 million or 62.9% of
consolidated sales.  The decrease in gross margin as a percent of sales is, in
part, a result of some products sold by WWG, Cheetah, and ADA, which have a
lower gross margin than the Company's primary products.  This includes products
that the Company sells that are purchased and resold to the customer at a lower
gross margin than products manufactured directly or indirectly by the Company.

Operating Expenses.  Operating expenses from continuing operations consist of
selling, general and administrative expense; product development expense;
recapitalization and other related costs; purchased incomplete technology; and
amortization of intangibles.  Total operating expenses were $764.4 million or
65.5% of consolidated sales for the fiscal year ended March 31, 2001, as
compared to $254.4 million or 56.1% of consolidated sales for the fiscal year
ended March 31, 2000.  Excluding the impact of the writeoff of the purchased
incomplete technology of $56 million and the recapitalization and other related
costs of $9 million,  total operating expenses were $699.3

                                      B-5
<PAGE>

million or 59.9% of consolidated net sales during fiscal 2001. The increase is
primarily a result of the WWG Merger, which has a higher cost structure than the
Company has had historically, increased intangible amortization expense,
increased amortization of unearned compensation, and expenses relating to the
rebranding and additional consultants hired for the integration of WWG with the
Company's communications test segment.

Amortization of unearned compensation relates to the issuance of non-qualified
stock options to employees and non-employee directors at a grant price lower
than the closing price in the public market on the date of issuance.  The
amortization of unearned compensation expense during fiscal 2001 was $18.3
million and has been allocated to cost of sales ($1.2 million), product
development expense ($3.8 million), and selling, general and administrative
expense ($13.3 million). The amortization expense during fiscal 2000 of $1.9
million was allocated to cost of sales ($0.4 million), product development
expense ($0.1 million) and selling, general and administrative expense ($1.4
million).

The increase in the amortization of unearned compensation expense is primarily a
result of the non-qualified stock options that were granted to former WWG and
Cheetah employees who became active employees of the Company at the time of the
acquisitions. (See Notes to the Consolidated Financial Statements: Note E.
Summary of Significant Accounting Policies: Unearned Compensation).

Selling, general and administrative expense from continuing operations was
$439.4 million or 37.6% of consolidated sales for the fiscal year ended March
31, 2001. The percentage increase is in part a result of expenses totaling $25.2
million, which related to the rebranding and additional consultants hired for
the integration of WWG with the Company's communications test segment (the
"integration expenses"). In addition, the Company recorded a charge of $2.0
million during the third quarter of fiscal 2001 related to the writeoff of all
charges capitalized in connection with the Company's registration statement on
Form S-1, which the Company filed in July 2000 for a potential common stock
offering.  The Company amended this registration statement by converting it to a
universal shelf registration statement on Form S-3 under which the company may
offer from time to time up to $1 billion of equity or debt securities.

Excluding the amortization of unearned compensation of $18.3 million, the
integration expenses of $25.2 million, and the writeoff of the S-1 charges of
$2.0 million, selling, general and administrative expense was $393.9 million in
fiscal 2001, or 33.7% of consolidated sales, which is comparable to the results
for fiscal 2000.

Product development expense from continuing operations was $150.1 million or
12.9% of consolidated sales for the fiscal year ended March 31, 2001 as compared
to $61.2 million or 13.5% of consolidated sales for the same period a year ago.
The dollar increase is a direct result of the WWG Merger and the acquisition of
Cheetah.

Recapitalization and other related costs from continuing operations during
fiscal 2001 were $9.2 million as compared to $27.9 million in fiscal 2000.  The
expense incurred during the first three months of fiscal 2001 of $9.2

                                      B-6
<PAGE>

million related to an executive who left the Company during fiscal 2000. The
expense incurred during fiscal 2000 related to termination expenses of certain
executives including the retirement of John F. Reno, former Chairman, President
and Chief Executive Officer of the Company, as well as other employees.

During fiscal 2001, the Company recorded a total charge of $56 million for
acquired incomplete technology, of which $51 million related to the WWG Merger
and $5 million related to the acquisition of Cheetah.  This purchased incomplete
technology had not reached technological feasibility and had no alternative
future use.

Amortization of intangibles from continuing operations was $109.8 million for
the fiscal year ended March 31, 2001 as compared to $8.8 million for the same
period a year ago.  The increase was primarily attributable to increased
goodwill and other intangible amortization related to the acquisitions of
Cheetah, WWG and ADA.

Interest.  Interest expense, net of interest income from continuing operations,
was $98.9 million for the fiscal year ended March 31, 2001 as compared to $49.6
million for the same period a year ago. The increase in net interest expense
during fiscal 2001 resulted from the additional debt incurred for the WWG Merger
and the acquisition of Cheetah.

Other income (expense).  During fiscal 2001, the Company incurred approximately
$5.5 million of losses in connection with changes in foreign currencies.

Taxes.  The effective tax rate changed for the fiscal year ended March 31, 2001
to a benefit of 4.9% as compared to a benefit of 14.9% for the fiscal year ended
March 31, 2000.  The principal reasons for the decrease in the effective tax
rate were:  (1) additional non-deductible goodwill amortization in fiscal 2001
as a result of the WWG Merger and (2) an increase in the amount of income earned
in various countries with tax rates higher than the U.S. federal rate, primarily
Germany.

Extraordinary item.  In connection with the WWG Merger, the Company recorded an
extraordinary charge of approximately $10.7 million (net of an income tax
benefit of $6.6 million), of which $7.3 million (pretax) related to a premium
paid by the Company to WWG's former bondholders for the repurchase of WWG's
senior subordinated debt outstanding prior to the WWG Merger.  In addition, the
Company booked a charge of $10.0 million (pretax) for the unamortized deferred
debt issuance costs that originated at the time of the May 1998
Recapitalization.


Fiscal 2000 Compared to Fiscal 1999 on a Consolidated Basis

Sales.  For the fiscal year ended March 31, 2000 consolidated sales from
continuing operations increased $123.7 million or 37.5% to $453.2 million as
compared to $329.5 million for the fiscal year ended March 31, 1999.  The
increase was primarily attributable to increased demand for the Company's
communications test products as this business segment experienced a recovery
from fiscal 1999's reduced order volume.  In addition, the Company also

                                      B-7
<PAGE>

recognized additional revenue due to the acquisitions of ADA within the
communications test segment and Sierra within Other Subsidiaries. These
acquisitions contributed to approximately 7.5% of the total sales growth.

International sales (defined as sales outside of North America) from continuing
operations were $65.8 million or 14.5% of consolidated sales for the fiscal year
ended March 31, 2000, as compared to $63.4 million or 19.2% of consolidated
sales for the fiscal year ended March 31, 1999.

Gross Profit.  Consolidated gross profit from continuing operations increased
$75.2 million to $296.2 million or 65.3% of consolidated sales for the fiscal
year ended March 31, 2000 as compared to $220.9 million or 67.0% of consolidated
sales for the fiscal year ended March 31, 1999.  The dollar increase was
directly related to the increase in sales; the percentage decrease is a result
of the change in sales mix due to the shipment of additional lower-margin
products in fiscal 2000 than in fiscal 1999 as well as certain purchase
accounting effects from the acquisition of ADA.

Operating Expenses.  Operating expenses from continuing operations consist of
selling, general and administrative expense; product development expense;
recapitalization and other related costs; and amortization of intangibles.
Total operating expenses were $254.4 million or 56.1% for the fiscal year ended
March 31, 2000, as compared to $199.4 million or 60.5% of consolidated sales for
the fiscal year ended March 31, 1999.  Excluding the impact of the
recapitalization and other related costs, total operating expenses were $226.5
million or 50.0% of consolidated sales in fiscal 2000, as compared to $158.7
million or 48.1% of consolidated sales in fiscal 1999.  The increase in total
operating expenses excluding recapitalization and other related costs is due in
part to an increase in research and development expenses as the Company invested
in the next generation of communications test equipment.  The Company also
incurred additional expenses relating to improvements in the subsidiaries'
customer service departments, enterprise resource plan implementation, failed
acquisitions, and additional consulting costs.

Included in both cost of sales and operating expenses from continuing operations
is the amortization of unearned compensation which relates to the issuance of
stock options to employees and non-employee directors at a grant price lower
than fair market value (defined as the closing price on the open market at the
date of issuance).  The amortization of unearned compensation in fiscal 2000 and
1999 was $1.9 million and $1.2 million, respectively, and has been allocated to
cost of sales; selling, general and administrative expense; and product
development expense.

Selling, general and administrative expense from continuing operations was
$156.5 million or 34.3% of consolidated sales for the fiscal year ended March
31, 2000, as compared to $113.5 million or 34.4% of consolidated sales for the
fiscal year ended March 31, 1999. The marginal percentage increase is in part a
result of the increase in sales as well as the timing of sales commission
expense.

Product development expense from continuing operations was $61.2 million or
13.5% of consolidated sales for the fiscal year ended March 31, 2000 as compared
to $42.5 million or 12.9% of consolidated sales for the same period a year ago.
During fiscal 2000, the Company invested in the next generation

                                      B-8
<PAGE>

of high-speed test equipment as well as data services all within the
communications test segment.

Recapitalization and other related costs from continuing operations during
fiscal 2000 were $27.9 million, most of which related to the retirement of John
F. Reno, former Chairman, President and Chief Executive Officer of the Company,
as well as other employees.

Recapitalization and other related costs from continuing operations totaling
$40.8 million were incurred during fiscal 1999 in connection with the
Recapitalization, consisting of cancellation payments of employee stock options,
compensation expense due to the acceleration of unvested stock options, and
certain other expenses resulting from the Recapitalization.

Amortization of intangibles from continuing operations was $8.8 million for the
fiscal year ended March 31, 2000 as compared to $2.7 million for the same period
a year ago.  The increase was primarily attributable to increased goodwill
amortization related to the acquisitions in fiscal years 1999 and 2000.

Interest.  Interest expense, net of interest income from continuing operations
was $49.6 million for the fiscal year ended March 31, 2000 as compared to $42.8
million for the same period a year ago. The increase in net interest expense
during fiscal 2000 was a result of the debt incurred in connection with the
Recapitalization which was outstanding for 12 months during fiscal 2000 and
outstanding for slightly more than 10 months during fiscal 1999.  Also included
in interest expense is amortization expense of $3.2 million and $2.7 million in
fiscal 2000 and 1999, respectively, related to deferred debt issuance costs
which are being amortized over the life of the Senior Secured Credit Agreement.
See Capital Resources and Liquidity - Debt Service.

Other income.  During fiscal 1999, the Company sold the net assets of ComCoTec
for $21 million in gross proceeds that resulted in a gain of $15.9 million.

Taxes.  The effective tax rate changed for the fiscal year ended March 31, 2000
to a benefit of 14.9% as compared to 1.2% for the fiscal year ended March 31,
1999, primarily due to nondeductible compensation incurred in connection with
the Recapitalization during fiscal 1999, and lower foreign and states taxes
incurred in fiscal 2000.


Business Segment

The Company measures the performance of its subsidiaries by their respective
new orders received ("bookings"), net sales and earnings before interest, taxes,
and amortization of intangibles and amortization of unearned compensation
("EBITA"), which excludes non-recurring and one-time charges (See Appendix C --
Notes to Consolidated Financial Statements: Note Q. Segment Information and
Geographic Areas.)

                                      B-9
<PAGE>

Included in the segment's EBITA is an allocation of corporate expenses.   The
information below includes bookings, net sales and EBITA for the communications
test segment and the Company's Other Subsidiaries:

<TABLE>
<CAPTION>
                                                         Years ending March 31,
                                                    2001         2000          1999
                                                    ----         ----          ----
                                                        (Amounts in thousands)
<S>                                           <C>            <C>           <C>
Communications test segment:
 Bookings                                     $1,248,465     $430,254      $260,722
 Net sales                                     1,052,746      349,886       238,942
 EBITA                                           139,498       62,447        42,800

Other subsidiaries:
 Bookings                                     $  112,862     $103,802      $ 95,785
 Net sales                                       115,068      103,354        90,590
 EBITA                                            26,499       27,718        29,841
</TABLE>


Fiscal 2001 Compared to Fiscal 2000 - Communications Test

Bookings for the communications test products increased 190.2% to $1.25 billion
for the fiscal year ended March 31, 2001, as compared to $430.3 million for the
same period a year ago.  The increase was primarily due to the WWG Merger and
the acquisition of Cheetah and ADA as well as an increase in bookings for
instruments, principally in the optical transport products, systems and services
at the Company's existing communications test businesses.

Net sales of communications test products increased 200.9% to $1.05 billion for
the fiscal year ended March 31, 2001, as compared to $349.9 million for the same
period a year ago. The increase in sales was due to the additional net sales
from the WWG Merger and the acquisitions of Cheetah and ADA.  The increase is
related to the following portions of the communications test segment:  15.0% was
attributable to core growth, 3.8% was attributable to the additional sales from
ADA; 77.2% was attributable to the WWG Merger; and 4.0% was attributable to the
acquisition of Cheetah.

For the fiscal years ended March 31, 2001 and March 31, 2000, respectively,
sales of optical transport products were $420.3 million and $154.1 million;
sales of cable products were $129.6 million and $0 million; and sales of
telecommunications systems and software products were $90.3 million and $47.3
million.

EBITA for the communications test products increased 123.4% to $139.5 million
for fiscal 2001 as compared to $62.4 million for the same period a year ago.
The increase in EBITA is a result of the WWG Merger and the acquisition of
Cheetah, which was offset by integration expenses.


Fiscal 2000 Compared to Fiscal 1999 - Communications Test

                                      B-10
<PAGE>

Bookings for the communications test products increased 65.0% to $430.3 million
for the fiscal year ended March 31, 2000, as compared to $260.7 million for the
same period a year ago.  The increase is due to a recovery from fiscal 1999's
reduced order volume.  The Company received an increase in orders for its
transmission test equipment (transport loops) as well as an increase in bookings
due to the acquisition of ADA.  The Company experienced a decrease in bookings
during fiscal 1999 for its core instruments in part due to the Regional Bell
Operating Companies ("RBOC's") consolidation of their purchasing practices as
well as the economic slowdown in Asia.

Sales of communications test products increased 46.4% to $349.9 million for the
fiscal year ended March 31, 2000, as compared to $238.9 million for the same
period a year ago.  The increase in sales is a direct result of the increase in
bookings.  The Company shipped an increased amount of orders for its
transmission test equipment (transport and loop) as well as orders for its
training and software development.

EBITA for the communications test products increased 45.9% to $62.4 million for
fiscal 2000 as compared to $42.8 million for the same period a year ago.  The
increase in EBITA is a result of the increase in sales.


Fiscal 2001 Compared to Fiscal 2000 - Other Subsidiaries

Included in other subsidiaries are two of the Company's operating business
units:  AIRSHOW, Inc. and daVinci Systems.  The trend in these businesses
collectively shows an increase in revenues and bookings during the three years
presented but a declining EBITA.  This trend is primarily the result of
increased shipments of Airshow's products to the general aviation market, which
carry a lower gross margin than commercial aviation products, as well as
increased product costs in its commercial aviation products.  da Vinci's
revenues and EBITA have increased 33% and 26% as compared to the same period
last year, respectively, partially as a result of two small acquisitions.


Capital Resources and Liquidity

The Company broadly defines liquidity as its ability to generate sufficient cash
flow from operating activities to meet its obligations and commitments.  In
addition, liquidity includes the ability to obtain appropriate debt and equity
financing and to convert into cash those assets that are no longer required to
meet existing strategic and financial objectives.  Therefore, liquidity cannot
be considered separately from capital resources that consist of current or
potentially available funds for use in achieving long-range business objectives
and meeting debt service commitments.

The Company's liquidity needs arise primarily from debt service on the
substantial indebtedness incurred in connection with the Recapitalization in May
1998, the acquisition of ADA in November 1999, the WWG Merger in May 2000, the
acquisition of Cheetah in August 2000, and from the funding of working capital
and capital expenditures. The increased working capital balances of the Company
at March 31, 2001 following these acquisitions are expected to continue at
similar levels for the foreseeable future.

                                      B-11
<PAGE>

The Statement of Cash Flows for all periods presented includes the cash flows
from the industrial computing and communications segment on a fully-consolidated
basis and have not been restated to reflect discontinued operations.

Cash Flows.  The Company's cash and cash equivalents increased $27.3 million
during the fiscal year ended March 31, 2001.

Working Capital.  For the fiscal year ended March 31, 2001, the Company's net
working capital increased as its operating assets and liabilities used $67.7
million of cash, excluding acquisitions.  Accounts receivable increased,
creating a use of cash of $48.1 million, primarily due to the increase in
shipments during the last month of the fiscal year.  Inventory levels increased,
creating a use of cash of $40.8 million, due in part to the increase in raw
material inventory to support the large backlog position at the communications
test subsidiaries.  In addition, the Company has a large finished goods
inventory of systems solutions also at the communications test subsidiaries
which have not yet been installed at the customers' requested sites.  Other
current assets increased, creating a use of cash of $2.2 million.  Accounts
payable increased creating a source of cash of $25.2 million as the Company
continues to manage its working capital.  Other current liabilities decreased
creating a use of cash of $1.8 million.

Investing activities. The Company's investing activities totaled $464.1 million
for the fiscal year ended March 31, 2001 in part for the purchase and
replacement of property and equipment. The primary use of cash was for the WWG
Merger and the acquisition of Cheetah during fiscal 2001 for a total cash
purchase price of approximately $422.1 million (approximately $578.2 million in
gross purchase price less $156.1 million in cash and non-cash items).

The Company's capital expenditures in fiscal 2001 were $45.9 million as compared
to $21.9 million in fiscal 2000.  The increase during fiscal 2001 was primarily
due to additional purchases at WWG. The Company is subject to annual maximum
capital expenditure covenants under the Senior Secured Credit Facility.

Debt and equity. The Company's financing activities generated $474.6 million in
cash during fiscal 2001, due mainly to the additional borrowings of debt and the
cash generated from the sale of stock in connection with the WWG Merger and the
acquisition of Cheetah.


DEBT SERVICE

In connection with the WWG Merger, the Company refinanced a portion of its debt
and entered into a new senior secured credit facility with a syndicate of
lenders (the "Senior Secured Credit Facility") that provided for term loans and
a revolving credit facility (the "Revolving Credit Facility"). As of March 31,
2001, the Company had $1,078.6 million of debt (excluding notes payable of $10.9
million), primarily consisting of $275.0 million principal amount of the
Company's 9 3/4% Senior Subordinated Notes (the "Senior Subordinated Notes"),
$668.4 million in the term loan borrowings and $108.0 million in revolving
credit borrowings under the Senior Secured Credit

                                      B-12
<PAGE>

Facility, and $27.2 million in other debt obligations. As of March 31, 2000, the
Company had $579.9 million of debt.

The annual weighted-average interest rate on the loans under the Company's
senior secured credit facilities was 9.8% and 7.85% for the fiscal years ended
March 31, 2001 and 2000, respectively.  Due to the recent reduction in the prime
interest rate, the Company's 90-day LIBOR borrowing rate (plus the applicable
margin) was 7.65% at March 31,2001.  Interest on the Senior Subordinated Notes
accrues at the rate of 9 3/4% per annum and is payable semi-annually in arrears
on each May 15 and November 15 through 2008.

The loans under the Senior Secured Credit Facility bear interest at floating
rates based upon the interest rate option elected by the Company.  To fix
interest charged on a portion of its debt, the Company entered into interest
rate hedge agreements.  After giving effect to these hedge agreements, $195
million of the Company's debt is currently subject to an effective average
annual fixed rate of 5.718% per annum until September 2002.

Interest on the loans outstanding under the Senior Secured Credit Facility is
payable quarterly in arrears on each June 30, September 30, December 31 and
March 31 through maturity.

The Company is also required to pay a commitment fee based on the unused amount
of the Revolving Credit Facility. The rate is an annual rate, paid quarterly,
and ranges from 0.30% to 0.50%, and is based on the Company's leverage ratio in
effect at the beginning of the quarter. The Company paid $0.3 million and $0.3
million in fiscal 2001 and 2000, respectively, in commitment fees.

The mandatory principal repayment schedule of the Senior Secured Credit Facility
over the next five years and thereafter is: $18.8 million in fiscal 2002, $25.8
million in fiscal 2003, $40.8 million in fiscal 2004, $44.8 million in fiscal
2005, $75.2 million in fiscal 2006, and $462.0 million in fiscal years
subsequent to fiscal 2006.

In addition, on June 29, 2001, the Company entered into an unsecured, short-term
revolving credit facility (the "Short-Term Credit Facility") with Credit Suisse
First Boston and The Chase Manhattan Bank, which provides for revolving credit
loans in an aggregate principal amount not to exceed $40 million.  The Company
arranged the facility to provide additional funds for general corporate purposes
including short-term working capital needs, which have increased in part, as a
result of the growth of the Company's business. Loans under the facility bear
interest at floating rates based upon the interest rate option elected by the
Company. The Short-Term Credit Facility matures on December 31, 2001. Interest
and any loans outstanding from time to time under the Short-Term Credit Facility
are expected to be repaid from cash generated by the Company's operations.

At March 31, 2001, approximately $43.7 million remained undrawn under the
Revolving Credit Facility including outstanding letters of credit which reduce
the borrowing capacity of the Company under the Revolving Credit Facility.  As
of June 29, 2001, the Company had an aggregate of approximately $40 million of
borrowing capacity under the Revolving Credit Facility and the Short-Term Credit
Facility.

Principal and interest payments under the Company's credit facilities and
interest payments on the Senior Subordinated Notes have represented and will
continue to represent significant liquidity requirements for the Company. (See
Appendix C -Notes to the Consolidated Financial Statements: Note I. Notes
Payable and Debt.)

Future financing sources and cash flows. While the Company believes that cash
generated from operations, together with amounts available from time to time
under the Revolving Credit Facility and the Short-Term Credit Facility and other
available sources of liquidity, will be adequate to permit the Company to meet
its debt service obligations, investment and capital expenditure program
requirements, ongoing operating costs and working capital needs, the Company
cannot assure that this will be the case. The Company's future operating
performance and ability to service or refinance the Senior Subordinated Notes
and to repay, extend or refinance the Senior Secured Credit Facility (including
the Revolving Credit Facility) and the Short-Term Credit Facility will be, among
other things, subject to future economic conditions and to financial, business
and other factors, many of which are beyond the Company's control.

In July 2000 the Company filed a registration statement on Form S-1 for a
potential common stock offering.  In February 2001, the Company amended this
registration statement by converting it to a universal shelf registration
statement on Form S-3 under which the Company may offer from time to time up to
$1 billion of equity or debt securities.  The shelf registration statement was
declared effective by the Securities and Exchange Commission on April 4, 2001.
The Company's shelf registration statement creates additional potential sources
of liquidity in the future.

Covenant restrictions. The Company's Senior Secured Credit Facility contains
covenants that, among other things, restrict its ability to obtain additional
sources of financing and cash flows, including by disposing assets, incurring
additional debt, guaranteeing obligations or incurring contingent liabilities,
repaying the Senior Subordinated Notes, paying dividends, creating liens on
assets, making investments, loans or

                                      B-13
<PAGE>

investments, engaging in mergers or consolidations, making capital expenditures
or engaging in certain transactions with affiliates. Under the Senior Secured
Credit Facility, the Company is required to comply with a minimum interest
expense coverage ratio and a maximum leverage ratio, and these financial tests
will become more restrictive in future years. The indenture governing the Senior
Subordinated Notes limits the Company's ability to incur additional
indebtedness.

The restrictions in the Senior Secured Credit Facility and the Senior
Subordinated Notes could limit the Company's ability to respond to market
conditions, to meet its capital-spending program, to provide for unanticipated
capital investments or to take advantage of business opportunities.

As of March 31, 2001 and June 29, 2001, the Company was in compliance with all
covenants under the Senior Secured Credit Facility and the Senior Subsordinated
Notes and was in compliance with the terms of the Short-Term Credit Facility as
of June 29, 2001.

For a more detailed description of the Senior Subordinated Notes,the Senior
Secured Credit Facility and the Short-Term Credit Facility, including the
applicable principal amortization schedule and interest rates,and the Short Term
Credit Facility, see Appendix C - Notes to the Consolidated Financial
Statements: Note I. Notes Payable and Debt.


New Pronouncements

On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133. "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 was amended by Statement of
Financial Accounting Standards No. 137, which modified the effective date of FAS
133 to all fiscal quarters of all fiscal years beginning after June 15, 2000.
FAS 133, as amended, requires that all derivative instruments be recorded on the
balance sheet at their fair value.  Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction.  The Company assessed the impact
of the adoption of FAS 133 on April 1, 2001, and determined that it will not
have a significant impact on the results of operations and financial position.


Quantitative and Qualitative Disclosures about Market Risk

The Company operates manufacturing facilities and sales offices in over 80
countries.  The Company is subject to business risks inherent in non-U.S.
activities, including political and economic uncertainty, import and export
limitations, and market risk related to changes in interest rates and foreign
currency exchange rates.  The Company believes the political and economic risks
related to its foreign operations are mitigated due to the stability of the
countries in which its facilities are located. The Company's principal currency
exposures against the U.S. dollar are in the Euro and in Canadian currency.  The
Company does use foreign currency forward exchange contracts to mitigate
fluctuations in currency.  The Company's market risk exposure to currency rate
fluctuations is not material.  The Company does not hold derivatives for trading
purposes.

                                      B-14
<PAGE>

The Company uses derivative financial instruments consisting primarily of
interest rate hedge agreements to manage exposures to interest rate changes.
The Company's objective in managing its exposure to changes in interest rates
(on its variable rate debt) is to limit the impact of such changes on earnings
and cash flow and to lower its overall borrowing costs.

At March 31, 2001, the Company had $776.4 million of variable rate debt
outstanding.  The Company currently has two interest rate swap contracts with
notional amounts totaling $195 million which fixed its variable rate debt to a
fixed interest rate for periods of two years in which the Company pays a fixed
interest rate on a portion of its outstanding debt and receives interest at the
three-month LIBOR rate.

At March 31, 2001, the two swap contracts had a fixed interest rate higher than
the three-month LIBOR quoted by its financial institutions. However, the 3-month
LIBOR rate was higher than the fixed interest rate during the first three
quarters of fiscal 2001 that created a reduction in interest expense (calculated
as the difference between the interest rate in the swap contracts and the three-
month LIBOR rate). The reduction in interest expense recognized by the Company
during fiscal 2001 and fiscal 2000 was $1.8 million and $0.4 million,
respectively. The Company performed a sensitivity analysis assuming a
hypothetical 10% adverse movement in the floating interest rate on the interest
rate sensitive instruments described above. The Company believes that such a
movement is reasonably possible in the near term. As of March 31, 2001, the
analysis demonstrated that such movement would cause the Company to recognize
additional interest expense of approximately $1.0 million, and accordingly,
would cause a hypothetical loss in cash flows of approximately $1.0 million.

During fiscal 2001 economic factors have caused a significant interest rate
reduction, which in turn resulted in lower borrowing costs for the Company.  At
March 31, 2001 and 2000, the Company's variable rate debt was borrowed at a
LIBOR rate of 4.9025% and 6.3125%, respectively.  A hypothetical 10% adverse
movement in LIBOR based on the rate at March 31, 2001 would cause the Company to
recognize an additional interest expense of approximately $2.9 million, and
would cause a hypothetical loss in cash flows of approximately $2.9 million.


Risk Factors

Set forth below and elsewhere in this annual report and in the other documents
the Company files with the SEC are risks and uncertainties that could cause
actual results to differ materially from the results contemplated by the
forward-looking statements contained in this annual report.

                    Risks Related to the Company's Business

Because the Company's quarterly operating results have fluctuated in the past
and are likely to fluctuate in the future, the Company's stock price may be
volatile and may decline.

                                      B-15
<PAGE>

The Company has experienced in the past and expects to experience in the future
fluctuations in its quarterly results due to a number of factors beyond the
Company's control. Many factors could cause the Company's operating results to
fluctuate from quarter to quarter, including the following:

 .  the size and timing of orders from the Company's customers;

 .  the degree to which the Company's customers have allocated and spent their
   yearly budgets, which has, in some cases, resulted in higher net sales in the
   Company's fourth quarter;

 .  the uneven buying patterns of the Company's customers;

 .  the uneven pace of technology innovation; and.

 .  economic downturns or other factors reducing demand for telecommunication
   equipment and services.

A significant portion of the Company's operating expenses is fixed and if the
Company's net sales are below its expectations in any quarter, the Company may
not be able to reduce its spending in a timely manner.

The markets for the Company's products are highly competitive. Some of the
Company's current and potential competitors have greater name recognition and
greater financial, selling and marketing, technical, manufacturing and other
resources than the Company does.  In addition, due to the rapid evolution of the
markets in which the Company competes, additional competitors with significant
market presence and financial resources, including large telecommunications
equipment manufacturers, may enter the Company's markets and further intensify
competition.

The Company may not be able to compete effectively with its existing competitors
or with new competitors, and the Company's competitors may succeed in adapting
more rapidly and effectively to changes in technology, in the market or in
developing or marketing products that will be more widely accepted.

The markets the Company serves are characterized by rapid change and innovation.
The Company may not be able to develop and successfully market products that
account for such changes and innovations.

The market for the Company's products and services is characterized by rapidly
changing technologies, new and evolving industry standards and protocols and
product and service introductions and enhancements that may render the Company's
existing offerings obsolete or unmarketable.  A shift in customer emphasis from
employee-operated communications test to automated, remote test and monitoring
systems could likewise render some of the Company's existing product offerings
obsolete or unmarketable, or reduce the size of one or more of the Company's
addressed markets.  In particular, incorporation of self-testing functions in
the equipment currently addressed by the Company's communications test
instruments could render some of its offerings redundant and unmarketable.
Failure to anticipate or to respond

                                      B-16
<PAGE>

rapidly to advances in technology and to adapt its products appropriately could
have a material adverse effect on the Company's business, financial condition
and results of operations.

The development of new, technologically advanced products is a complex and
uncertain process requiring the accurate anticipation of technological and
market trends and the incurrence of substantial research and development costs.
The Company may not successfully anticipate such trends or have sufficient free
cash flow to continue to incur such costs. The Company cannot assure you that it
will successfully identify new product opportunities, develop and bring new
products to market in a timely manner and achieve market acceptance of its
products or that products and technologies developed by others will not render
the Company's products or technologies obsolete or noncompetitive.

The Company's manufacturing efforts could be interrupted due to component
shortages, which could reduce the Company's ability to build and sell its
products.

The Company uses a number of components to build its products and systems that
are only available from a limited number of, or single-source, vendors. In
addition, to obtain the components the Company requires to build its products
and systems, the Company may be required to identify alternate sources of
supply, which can be time consuming and result in higher procurement costs.  The
Company also cannot assure that it will be able to obtain suitable substitutes
for components that become unavailable, which could potentially require the
Company to perform costly and time consuming redesigns of its products.  If the
Company is unable to obtain sufficient quantities of required components, or if
suppliers choose to reduce the amount of parts they make available to the
Company, the Company may be unable to meet customer demand for its products,
which would negatively affect its business and results of operations and could
materially damage customer relationships.

Acquisitions by the Company of additional businesses, products or technologies
could negatively affect its business and its stock price.

The Company has acquired businesses and technologies in the past and expects to
pursue acquisitions of other companies, technologies and new and complementary
product lines in the future.  Any acquisition would involve risks to the
Company's business, including:

 .  an inability to integrate the operations, products and personnel of the
   Company's acquired businesses and diversion of management's time and
   attention;

 .  an inability to expand the Company's financial and management controls and
   reporting systems and procedures to incorporate the acquired businesses;

 .  potential difficulties in completing projects associated with purchased in-
   process research and development;

                                      B-17
<PAGE>

 .  assumption of unknown liabilities, or other unanticipated events or
   circumstances;

 .  the possibility that the Company may pay too much cash or issue too much of
   its stock as the purchase price for an acquired business relative to the
   economic benefits that the Company ultimately derives from operating the
   acquired business; and

 .  the need to record significant one-time charges or amortize intangible
   assets, which could lower the Company's reported earnings.

Mergers and acquisitions of high-technology companies are inherently risky.  The
Company cannot assure that any business that it may acquire will achieve
anticipated net sales and operating results, which could decrease the value of
the acquisition to the Company.  Any of these risks could materially harm the
Company's business, financial condition and results of operations.  Payment paid
for future acquisitions, if any, could be in the form of cash, stock, and rights
to purchase stock or a combination of these.  Dilution to existing stockholders
and to earnings per share may result in connection with any future acquisitions.

The Company's substantial debt could adversely affect its financial condition.


The Company's substantial level of debt and the terms of its debt instruments
may have important consequences for the Company including the following:

 .  the Company's vulnerability to adverse general economic conditions is
   heightened;

 .  the Company will be required to dedicate a substantial portion of its cash
   flow from operations to repayment of debt, limiting the availability of cash
   for other purposes;

 .  the Company is and will continue to be limited by financial and other
   restrictive covenants in its ability to borrow additional funds, guarantee
   obligations, pay dividends, consummate asset sales, enter into transactions
   with affiliates or conduct mergers and acquisitions;

 .  the Company's flexibility in planning for, or reacting to, changes in its
   business and industry will be limited;

 .  the Company is sensitive to fluctuations in interest rates because some of
   its debt obligations are subject to variable interest rates; and

 .  the Company's ability to obtain additional financing in the future for
   working capital, capital expenditures, acquisitions, general corporate
   purposes or to capitalize on business opportunities may be impaired.

Economic, political and other risks associated with international sales and
operations could adversely affect the Company's net sales.

                                      B-18
<PAGE>

Because the Company sells its products worldwide, the Company's business is
subject to risks associated with doing business internationally.  The Company
expects its net sales originating outside the United States to be approximately
half of the Company's total net sales for its 2002 fiscal year.  In addition,
many of the Company's manufacturing facilities and suppliers are located outside
the United States.  Accordingly, the Company's future results could be harmed by
a variety of factors, including:

 .  changes in foreign currency exchange rates;

 .  changes in a specific country's or region's political or economic conditions,
   particularly in emerging markets;

 .  trade protection measures and import or export licensing requirements; and

 .  potentially negative consequences from changes in tax laws and other
   regulatory requirements.

The planned divestiture of the Company's industrial computing and communications
segment may not be successful.

In May 2000, the Company's board of directors approved a plan to divest its
industrial computing and communications segment, which consists of the ICS
Advent and Itronix Corporation subsidiaries.  The Company cannot assure that it
will be able to find a buyer for these subsidiaries or that the Company will be
able to obtain an attractive price.

Several of the Company's products must comply with significant governmental and
industry-based regulations, certifications, standards and protocols, some of
which evolve as new technologies are deployed. Compliance with such regulations,
certifications, standards and protocols may prove costly and time-consuming for
the Company, and the Company cannot assure that its products will continue to
meet these standards in the future.  In addition, regulatory compliance may
present barriers to entry in particular markets or reduce the profitability of
the Company's product offerings.  Such regulations, certifications, standards
and protocols may also adversely affect the communications industry, limit the
number of potential customers for the Company's products and services or
otherwise have a material adverse effect on its business, financial condition
and results of operations.  Failure to comply, or delays in compliance, with
such regulations, standards and protocols or delays in receipt of such
certifications could delay the introduction of new products or cause the
Company's existing products to become obsolete.


                   Risks Related to the Company's Industry.

Industry consolidation or changes in regulation could adversely affect the
Company's business.

                                      B-19
<PAGE>

A substantial portion of the Company's customers are regional telephone service
operating companies, competitive access providers, wireless service providers,
competitive local exchange carriers and other communications service providers
and industrial engineers and other users of communications test equipment.
Their industries are characterized by intense competition and consolidation.
Consolidation could reduce the number of the Company's customers, increase their
buying power and create pressure on the Company to lower its prices.  In
addition, governmental regulation of the communications industry could
materially adversely affect the Company's customers and, as a result, materially
limit or restrict its business.  The current trend toward deregulation of the
telecommunications market, which has resulted in increased competition among the
Company's customers as well as escalating demand on the part of such customers
for the Company's technologies and services, may not continue.

If service providers reduce their use of field technicians and successfully
implement a self-service installation model, demand for the Company's products
could decrease.

To ensure quality service, the Company's major service provider customers
typically send into the field a technician who uses its products to verify
service for installations.  However, some providers have recently announced
plans to encourage their customers to install their own service and, by doing
so, hope to reduce their expenses and expedite installation for their customers.
To encourage self-installation, these companies offer financial incentives.  If
service providers successfully implement these plans or choose to send
technicians into the field only after a problem has been reported, or if
alternative methods of verification become available, such as remote
verification service, the need for field technicians and the need for some of
the Company's communications test instruments could decrease, which would
negatively affect the Company's business and results of operations.

The Company's operating results could be harmed if the markets into which the
Company sells its products experience a downturn as a result of a reduction in
previously planned capital expenditures for infrastructure expansion.

Several significant markets into which the Company sells its products are
cyclical.  For example, the telecommunications industry in general, and the
competitive local exchange carrier segment in particular, are now experiencing a
downturn that may result in a reduction in previously planned capital
expenditures for infrastructure expansion.  These industry downturns have been
characterized by diminished product demand, excess manufacturing capacity and
the subsequent accelerated erosion of average selling prices.  Any significant
downturn in the Company's customers' markets or in general economic conditions
would likely result in a reduction in demand for the Company's products and
services and could harm its business.  The Company's customers may be unable to
pay for its products in a timely manner or they may decide to delay placing
orders with the Company.

                                      B-20
<PAGE>

The Company's success depends upon the quality of its key personnel.  If the
Company is unable to retain some of its personnel, or if it is unable to
continue to attract and retain highly-skilled personnel, its business may
suffer.

The Company's success depends in large part upon its senior management, as well
as its ability to attract and retain highly-skilled technical, managerial, sales
and marketing personnel, particularly engineers with communications equipment
experience.  Competition for such personnel is intense, and the Company may not
be successful in retaining its existing key personnel or attracting additional
employees.  Any failure of the Company to retain its personnel, including senior
management, could have a material adverse effect on the Company's business,
financial condition and results of operations.  In addition, continued labor
market shortages of technically-skilled personnel may lead to significant wage
increases, which could adversely affect the Company's business, results of
operations or financial condition.

Third parties may claim the Company is infringing their intellectual property
and, as a result of such claims, the Company may face significant litigation or
incur licensing expenses or be prevented from selling its products.

Third parties may claim that the Company is infringing their intellectual
property rights, and the Company may be found to infringe those intellectual
property rights.  Any litigation regarding patents or other intellectual
property rights could be costly and time consuming, and divert the attentions of
the Company's management and key personnel from its business operations. Claims
of intellectual property infringement might also require the Company to enter
into costly royalty or license agreements.  However, the Company may not be able
to obtain royalty or license agreements on terms acceptable to it, or at all.
The Company also may be subject to significant damages or injunctions against
development and sale of certain of its products.

Third parties may infringe on the Company's intellectual property and, as a
result, the Company may be required to expend significant resources enforcing
its rights or suffer competitively.

The Company's success depends in large part on its intellectual property.  The
Company relies on a combination of patents, copyrights, trademarks and trade
secrets, confidentiality provisions and licensing arrangements to establish and
protect its proprietary intellectual property.  If the Company fails to protect
or to enforce successfully its intellectual property rights, the Company's
competitive position could suffer, which could have a material adverse effect on
its business, financial condition and results of operations.

                                      B-21
<PAGE>

The Company's products are complex, and its failure to detect errors and defects
may subject it to costly repairs, product returns under warranty and product
liability litigation.

The Company's products are complex and may contain undetected defects or errors
when first introduced or as enhancements are released. The existence of these
errors or defects could result in costly repairs and/or returns of products
under warranty, diversion of development resources and, more generally, in
delayed market acceptance of the product or damage to the Company's reputation
and business, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.

                 Risks Related to the Company's Common Stock.

The Company's current principal stockholders have effective control over the
Company's business.

As of March 31, 2001, the CDR Funds, the Company's controlling stockholders,
together held approximately 81% of the outstanding shares of the Company's
common stock. In addition, three of the ten directors who serve on the Company's
board are currently affiliated with the CDR Funds. By virtue of such stock
ownership and board representation, the CDR funds have effective control over
all matters submitted to the Company's stockholders, including the election of
the Company's directors, and exercise significant control over the Company's
policies and affairs. Such concentration of voting power could have the effect
of delaying, deterring or preventing a change in control or other business
combination that might otherwise be beneficial to the Company's stockholders. In
addition, CDR Fund V has agreed, pursuant to certain employment agreements with
Messrs. Allan M. Kline, the Company's Corporate Vice President, Chief Financial
Officer and Treasurer, and John R. Peeler, the President and Chief Executive
Officer of the Company's Communications Test Business, to vote its shares to
elect both men as directors so long as they are employed by the Company.

Only approximately 11% of the Company's common stock trades publicly and the
market for technology stocks is extremely volatile.

The public market for the Company's common stock is limited as only
approximately 11% of the outstanding stock trades publicly. The small size of
the Company's float tends to increase the volatility of the Company's stock
price. In addition, the stock market in general, and the market for technology
stocks in particular, have experienced extreme volatility and this volatility
has often been unrelated to the operating performance of particular companies.
The market price of the Company's common stock could fluctuate significantly at
any time in response to such factors as:

 .  changes in financial estimates or investment recommendations relating to the
   Company by securities analysts;

 .  the Company's quarterly operating results falling below securities analysts'
   or investors' expectations in any given period;

                                      B-22
<PAGE>

 .  announcements by the Company or its competitors of new products, acquisitions
   or strategic relationships; and

 .  general market conditions and domestic and international economic factors
   unrelated to the Company's performance.

In the past, following periods of market volatility, stockholders have
instituted securities class action litigation. If the Company were involved in
securities litigation, it could have a substantial cost and divert resources and
the attention of executive management from the Company's business.


Forward-Looking Statements

This report (other than the Company's consolidated financial statements and
other statements of historical fact) contains forward-looking statements.

The Company has based these forward-looking statements on its current
expectations and projections about future events. Although the Company believes
that its assumptions made in connection with the forward-looking statements are
reasonable, the Company cannot assure that its assumptions and expectations will
prove to have been correct. These forward-looking statements are subject to
various risks, uncertainties and assumptions including, the risk factors
described elsewhere in this report and the Company's other Securities and
Exchange Commission filings.

The Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the forward-
looking events discussed in this report might not occur and actual results may
differ materially from the estimates or expectations reflected in the Company's
forward-looking statements.

                                      B-23
<PAGE>

                                                                      APPENDIX C

                              ACTERNA CORPORATION
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S>                                                             <C>
REPORT OF INDEPENDENT ACCOUNTANTS                               C-2

FINANCIAL STATEMENTS

   CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2001 AND 2000    C-3

   CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
     MARCH 31, 2001, 2000 AND 1999                              C-4

   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
      FOR THE YEARS ENDED MARCH 31, 2001, 2000 AND 1999         C-5

   CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
     MARCH 31, 2001, 2000 AND 1999                              C-7

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                   C-8
</TABLE>

                                      C-1
<PAGE>

                       Report of Independent Accountants

To the Board of Directors and Stockholders of Acterna Corporation:

   In our opinion, the consolidated financial statements listed in the index
   appearing under Item 14 (a)(1) present fairly, in all material respects, the
   financial position of Acterna Corporation and its subsidiaries (the
   "Company") at March 31, 2001 and 2000, and the results of their operations
   and their cash flows for each of the three years in the period ended March
   31, 2001, in conformity with accounting principles generally accepted in the
   United States of America. In addition, in our opinion the financial statement
   schedule listed in the index appearing under Item 14 (a)(2) presents fairly,
   in all material respects, the information set forth therein when read in
   conjunction with the related consolidated financial statements. These
   financial statements and financial statement schedule are the responsibility
   of the Company's management; our responsibility is to express an opinion on
   these financial statements and financial statement schedule based on our
   audits. We conducted our audits of these statements in accordance with
   auditing standards generally accepted in the United States of America, which
   require that we plan and perform the audit to obtain reasonable assurance
   about whether the financial statements are free of material misstatement. An
   audit includes examining, on a test basis, evidence supporting the amounts
   and disclosures in the financial statements, assessing the accounting
   principles used and significant estimates made by management, and evaluating
   the overall financial statement presentation. We believe that our audits
   provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
May 10, 2001, except for the last
paragraph of Note I, as to which
the date is June 29, 2001

                                      C-2
<PAGE>

                              Acterna Corporation
                          Consolidated Balance Sheets



                                                           March 31,
                                                       2001        2000
                                                     --------    --------
      Assets                                     (Amounts in thousands except
                                                   share and per share data)
Current assets:
  Cash and cash equivalents                         $   61,886   $ 33,839
  Accounts receivable, net
   of allowance of $8,997 and $1,952,
   respectively                                        215,067     78,236
  Inventories, net:
    Raw materials                                       43,726     11,085
    Work in process                                     45,772     12,859
    Finished goods                                      43,889      6,308
                                                    ----------   --------
     Total inventory                                   133,387     30,252

  Deferred income taxes                                 37,961     21,548
  Other current assets                                  36,627     16,332
                                                    ----------   --------
    Total current assets                               484,928    180,207

Property, plant and equipment:
 Land and buildings                                     55,123        ---
 Leasehold improvements                                 11,956      5,843
 Machinery and equipment                                66,325     62,361
 Furniture and fixtures                                 54,650     18,908
                                                    ----------   --------
                                                       188,054     87,112
 Less accumulated depreciation and amortization        (71,167)   (59,796)
                                                    ----------   --------
 Property, plant and equipment, net                    116,887     27,316

Other assets:
  Net assets of discontinued operations held
   for sale                                             99,244     72,601
  Intangible assets, net                               593,663     58,508
  Deferred income taxes                                    ---     42,689
  Deferred debt issuance costs, net                     25,908     21,382
  Other                                                 22,510     12,135
                                                    ----------   --------
                                                    $1,343,140   $414,838
                                                    ==========   ========

Current liabilities:
  Notes payable                                     $   10,919   $    ---
  Current portion of long-term debt                     22,248      7,646
  Accounts payable                                      97,024     38,374
  Accrued expenses:
   Compensation and benefits                            69,841     35,036
   Deferred revenue                                     26,823     13,564
   Warranty                                             11,914      8,297
   Interest                                             11,476     10,055
   Other                                                31,902      7,426
   Taxes other than income taxes                        12,843      1,844
  Accrued income taxes                                  11,991      5,703
                                                    ----------  ---------
   Total current liabilities                           306,981    127,945

Long-term debt                                       1,056,383    572,288
Deferred income taxes                                    2,915        ---
Deferred compensation                                   57,838     11,280

Commitments and contingencies (Note N.)

Stockholders' deficit:
 Serial preference stock, par value $1 per share;
  authorized 100,000 shares; none issued                   ---        ---
 Common stock, par value $0.01, 2001 and 2000,
  respectively, authorized 350,000,000 and
  200,000,000 shares; issued and outstanding
  190,953,052 and 122,526,750 shares                     1,910      1,225
 Additional paid-in capital                            801,080    344,873
 Accumulated deficit                                  (795,746)  (623,929)
 Unearned compensation                                 (90,986)   (16,965)
 Other comprehensive income (loss)                       2,765     (1,879)
                                                    ----------  ---------
   Total stockholders' deficit                        ( 80,977)  (296,675)
                                                    ----------  ---------
                                                    $1,343,140  $ 414,838
                                                    ==========  =========


   The accompanying notes are an integral part of the consolidated financial
                                  statements.



                                      C-3
<PAGE>

                              Acterna Corporation
                       Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                   Years Ended March 31,
                                                            2001           2000           1999
                                                          --------       --------       --------
                                                                  (Amounts in thousands
                                                                  except per share data)
<S>                                                     <C>              <C>            <C>
Net sales                                               $1,167,815       $453,239       $329,532
Cost of sales                                              468,542        157,090        108,618
                                                        ----------       --------       --------
Gross profit                                               699,273        296,149        220,914

Selling, general and administrative expense                439,404        156,499        113,469
Product development expense                                150,061         61,172         42,472
Recapitalization and other related costs                     9,194         27,942         40,767
Purchased incomplete technology                             56,000            ---            ---
Amortization of intangibles                                109,788          8,789          2,726
                                                        ----------       --------       --------
Total operating expenses                                   764,447        254,402        199,434
                                                        ----------       --------       --------
Operating income (loss)                                    (65,174)        41,747         21,480

Interest expense                                          (102,066)       (51,916)       (46,178)
Interest income                                              3,155          2,354          3,392
Other income (expense), net                                 (5,455)           (68)        15,703
                                                        ----------       --------       --------
Loss from continuing operations before
  income taxes and extraordinary item                     (169,540)        (7,883)        (5,603)

Benefit for income taxes                                    (8,382)        (1,169)           (69)
                                                        ----------       --------       --------
Net loss from continuing operations before
  extraordinary item                                      (161,158)        (6,714)        (5,534)

Discontinued operations:
 Operating income, net of income tax provision of
  $7,967 in 2000, and $6,903 in 1999                           ---         12,726         11,979
                                                        ----------       --------       --------
Net income (loss) before extraordinary item               (161,158)         6,012          6,445

Extraordinary item, net of income tax benefit
  of $6,603                                                (10,659)           ---            ---
                                                        ----------       --------       --------
Net income (loss)                                       $ (171,817)      $  6,012       $  6,445
                                                        ==========       ========       ========
Income per common share - basic and diluted:
  Continuing operations                                 $    (0.87)      $  (0.05)      $  (0.04)
  Discontinued operations                                      ---           0.09           0.09
  Extraordinary loss                                         (0.06)           ---            ---
                                                        ----------       --------       --------
                                                        $    (0.93)      $   0.04       $   0.05
                                                        ==========       ========       ========

Weighted average number of common shares
Basic and diluted                                          183,881        148,312        129,596
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      C-4
<PAGE>

                              Acterna Corporation

           Consolidated Statements of Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>
                                                                                                             Retained
                                                             Number of Shares                Additional     Earnings/
                                                           Common      Treasury    Common     Paid - In    (Accumulated
                                                           Stock        Stock       Stock      Capital       Deficit)
                                                           ------      ------      ------      --------      -------
                                                                             (Amounts in thousands)
<S>                                                        <C>         <C>         <C>        <C>          <C>
Balance, March 31, 1998                                      18,605     (1,741)     $ 3,721    $  7,647      $ 237,282

Net income - 1999                                                                                                6,445
Translation adjustment

Total comprehensive income

Exercise of stock options and
  other issuances                                               414         59                     (111)
Tax benefit from exercise of
  stock options                                                                                     609
Recapitalization and other related
 costs:
  Common stock repurchased                                  (18,605)     1,682       (3,721)     (7,269)      (873,668)
  Issuance of new stock, net of fees                        120,251                             298,148
  Stock options expense                                                                          14,640
  Unearned compensation                                                                           9,082
  Amortization of unearned compensation
                                                           --------   --------    ---------   ---------     ----------
Balance, March 31, 1999                                     120,665          0            0     322,746       (629,941)
                                                           --------   --------    ---------   ---------     ----------

Net income - 2000                                                                                                6,012
Translation adjustment

Total comprehensive income

Exercise of stock options and
  other issuances                                             1,862                      11       4,725
Adjustment to unearned compensation                                                              (1,143)
Stock option expense                                                                             12,327
Redemption of stock options                                                                      (6,980)
Unearned compensation from stock option
  grants                                                                                         12,951
Change in par value of common stock                                                   1,214      (1,214)
Amortization of unearned compensation
Tax benefit from exercise of
  stock options                                                                                   1,461
                                                           --------   --------     --------   ---------     ----------
Balance, March 31, 2000                                     122,527          0        1,225     344,873       (623,929)
                                                           --------   --------     --------   ---------     ----------
Net loss 2001                                                                                                 (171,817)
Translation adjustment

Total comprehensive loss

Issuance of common stock to CDR Funds                        43,125                     431     172,069
Issuance of common stock rights
  offering, net of fees                                       4,983                      50      16,882
Issuance of common stock to
 WWG stockholders                                            14,987                     150     129,850
Stock option expense                                                                             12,255
Conversion of Cheetah stock options                                                               5,754
Amortization of unearned compensation-
  continued operations
Amortization of unearned compensation -
  discontinued operations
Exercise of stock option and other
  issuances                                                   5,331                      54      10,919
Unearned compensation from stock option
  grants                                                                                         98,726
Adjustment to unearned compensation                                                             (11,567)
Tax benefit from exercise of stock
  options                                                                                        21,319
                                                           --------   --------      --------   --------      ----------
Balance, March 31, 2001                                     190,953          0      $ 1,910    $801,080      $(795,746)
                                                           ========   ========      ========   ========      ==========

</TABLE>


                                      C-5
<PAGE>



                              Acterna Corporation

           Consolidated Statements of Stockholders' Equity (Deficit)



<TABLE>
<CAPTION>
                                                                                                                  Total
                                                                                   Other                       Stockholders'
                                                                  Unearned     Comprehensive      Treasury         Equity
                                                                Compensation       Loss            Stock         (Deficit)
                                                                  --------         ----            -----          -------
                                                                                    (Amounts in thousands)
<S>                                                             <C>            <C>             <C>                <C>
Balance, March 31, 1998                                           $      0         $(1,600)       $(44,931)      $ 202,119

Net income - 1999                                                                                                    6,445
Translation adjustment                                                                 (82)                            (82)

                                                                                                                 ----------
Total comprehensive income                                                                                           6,363
                                                                                                                 ----------
Exercise of stock options and
  other issuances                                                                                    1,946           1,835
Tax benefit from exercise of
  stock options                                                                                                        609
Recapitalization and other related
 costs:
  Common stock repurchased                                                                          42,985        (841,673)
  Issuance of new stock, net of fees                                                                               298,148
  Stock options expense                                                                                             14,640
  Unearned compensation                                             (9,082)                                            ---
  Amortization of unearned compensation                              1,519                                           1,519
                                                                  --------       ---------        --------       ---------
Balance, March 31, 1999                                             (7,563)         (1,682)              0        (316,440)
                                                                  --------       ---------        --------       ---------

Net income - 2000                                                                                                    6,012
Translation adjustment                                                                (197)                           (197)
                                                                                                                 ---------
Total comprehensive income                                                                                           5,815
                                                                                                                 ---------
Exercise of stock options and
  other issuances                                                                                                    4,736
Adjustment to unearned compensation                                  1,130                                             (13)
Stock option expense                                                                                                12,327
Redemption of stock options                                                                                         (6,980)
Unearned compensation from stock option
  grants                                                           (12,951)                                            ---
Change in par value of common stock                                                                                    ---
Amortization of unearned compensation                                2,419                                           2,419
Tax benefit from exercise of stock options                                                                           1,461
                                                                  --------       ---------        --------       ---------
Balance, March 31, 2000                                            (16,965)         (1,879)              0        (296,675)
                                                                  --------       ---------        --------       ---------
Net loss 2001                                                                                                     (171,817)
Translation adjustment                                                               4,644                           4,644
                                                                                                                 ---------
Total comprehensive loss                                                                                          (167,173)
Issuance of common stock to CDR Funds                                                                              172,500
Issuance of common stock rights
  offering, net of fees                                                                                             16,932
Issuance of common stock to WWG
 stockholders                                                                                                      130,000
Stock option expense                                                                                                12,255
Conversion of Cheetah stock options                                 (6,721)                                           (967)
Amortization of unearned compensation-
  continued operations                                              18,266                                          18,266
Amortization of unearned compensation -
  discontinued operations                                            1,574                                           1,574
Exercise of stock option and other
  issuances                                                                                                         10,973
Unearned compensation from stock option
  grants                                                           (98,726)                                            ---
Adjustment to unearned compensation                                 11,586                                              19
Tax benefit from exercise of stock
  options                                                                                                           21,319
                                                                  --------       ---------        --------       ---------
Balance, March 31, 2001                                           $(90,986)      $   2,765        $      0       $ (80,977)
                                                                  ========       =========        ========       =========
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.



                                      C-6
<PAGE>

                              Acterna Corporation
                     Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                  Years Ended March 31,
                                                                           2001           2000            1999
                                                                         --------       ---------       ---------
                                                                                   (Amounts in thousands)
<S>                                                                     <C>              <C>             <C>
Operating activities:
 Net income (loss) from operations                                      $(171,817)       $   6,012       $   6,445
 Adjustment for noncash items included in net income:
  Depreciation                                                             23,852           13,082          11,741
  Amortization of intangibles and goodwill                                109,788           12,327           6,228
  Amortization of inventory step-up                                        35,750
  Amortization of unearned compensation                                    18,266            2,419           1,519
  Amortization of deferred debt issuance costs                              3,974            3,232           2,693
  Writeoff of deferred debt issuance costs                                 10,019              ---             ---
  Purchased incomplete technology                                          56,000              ---             ---
  Gain on sale of subsidiary                                                  ---              ---         (15,900)
  Recapitalization and other related costs                                  9,194           12,327          14,640
  Tax benefit from stock option exercises                                  21,319            1,461             609
  Other                                                                     2,047               56               3
  Change in deferred income taxes                                         (31,309)          (2,840)        (12,289)
 Changes in operating assets and liabilities, net of effects
  of purchase acquisitions and divestitures                               (67,713)           9,334          51,981
                                                                        ---------        ---------       ---------
 Net cash flows provided by operating activities                           19,370           57,410          67,670
                                                                        ---------        ---------       ---------
Investing activities:
 Purchases of property and equipment                                      (45,905)         (21,859)        (11,323)
 Proceeds from sale of property and equipment                               2,433
 Proceeds from sales of businesses                                          6,381              ---          21,000
 Businesses acquired in purchase transactions,
  net of cash and noncash items                                          (422,137)        (113,227)        (21,365)
 Other                                                                     (4,863)          (7,165)         (8,391)
                                                                       ----------        ---------       ---------
 Net cash flows used in investing activities                             (464,091)        (142,251)        (20,079)
                                                                       ----------        ---------       ---------
Financing activities:
 Borrowings under revolving credit facility, net                          108,000           70,000             ---
 Borrowings of term loan debt                                             683,566              ---         535,000
 Repayment of term loan debt                                              (12,944)         (17,139)         (8,000)
 Borrowings (repayments) of notes payable and other debt                   31,735             (212)         (2,351)
 Repayment of debt under old Senior Secured Credit Facility              (304,861)             ---             ---
 Repayment of WWG term debt                                              (118,594)             ---             ---
 Redemption of WWG bonds                                                  (94,148)             ---             ---
 Financing fees                                                           (18,519)             ---         (38,631)
 Proceeds from issuance of common stock, net of expenses                  200,405            4,736         278,835
 Purchases of treasury stock, common stock and stock options                  ---           (6,980)       (806,508)
                                                                        ---------        ---------       ---------
 Net cash flows provided by (used in) financing activities                474,640           50,405         (41,655)
                                                                        ---------        ---------       ---------
Effect of exchange rates on cash                                           (2,635)            (157)           (478)
                                                                        ---------        ---------       ---------
Increase (decrease) in cash and cash equivalents                           27,284          (34,593)          5,458
Cash and cash equivalents at beginning of year                             35,769           70,362          64,904
                                                                        ---------        ---------       ---------
Cash and cash equivalents at end of year                                $  63,053        $  35,769       $  70,362
                                                                        =========        =========       =========
Change in operating asset and liability components:
 Decrease (increase) in trade accounts receivable                       $ (48,080)       $ (18,176)      $  (1,114)
 Decrease (increase) in inventories                                       (40,817)           7,185           2,503
 Decrease (increase) in other current assets                               (2,224)          (7,324)          2,089
 Increase (decrease) in accounts payable                                   25,175           12,397          11,025
 Increase (decrease) in accrued expenses, taxes and other                  (1,767)          15,252          37,478
                                                                        ---------        ---------       ---------
Change in operating assets and liabilities                              $ (67,713)       $   9,334       $  51,981
                                                                        =========        =========       =========
Supplemental disclosures of cash flow information:
 Cash paid during the year for:
  Interest                                                              $ 105,115        $  48,791       $  33,376
  Income taxes                                                             13,036           14,737          16,013
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.


                                      C-7
<PAGE>

                              ACTERNA CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


A.   FORMATION AND BACKGROUND

     Acterna Corporation (the "Company" or "Acterna"), formerly Dynatech
     Corporation), was formed in 1959 and is a global communications equipment
     company focused on network technology solutions. The Company's operations
     are conducted primarily by wholly owned subsidiaries located principally in
     the United States of America and Europe with other operations, primarily
     sales offices, located in Asia and Latin America. The Company is managed in
     one business segment: communications test. The Company also has other
     subsidiaries that, in the aggregate, are not reportable as a segment.

     The communications test business develops, manufacturers and markets
     instruments, systems, software and services used to test, deploy, manage
     and optimize communications networks, equipment and services. In addition
     the Company also operates two subsidiaries, AIRSHOW, Inc., and da Vinci
     Systems. AIRSHOW is the leading provider of systems that deliver real-time
     news, information and flight data to aircraft passengers. da Vinci
     manufactures systems that correct or enhance the accuracy of color during
     the process of transferring film-based images to videotape.

     The Company operates on a fiscal year ended March 31 in the calendar year
     indicated (e.g., references to fiscal 2001 are references to the Company's
     fiscal year which began April 1, 2000 and ended March 31, 2001).


B.   DISCONTINUED OPERATIONS

     In May 2000, the Board of Directors approved a plan to divest the
     industrial computing and communications segment, which segment consists of
     ICS Advent and Itronix Corporation subsidiaries. In connection with such
     decision, the Company has hired, prepared and distributed a descriptive
     memorandum to qualified buyers and has received letters of interest from
     certain buyers. The Company is currently undergoing presentations and data
     review with these potential buyers and expects to divest these two
     subsidiaries, either separately or together, during the first half of the
     2002 fiscal year. The businesses to be divested have been treated as
     discontinued operations for accounting purposes.

     The segment's results of operations including net sales, operating costs
     and expenses, other income and expense and income taxes for fiscal 2000 and
     1999, have been presented in the accompanying statements of operations as
     discontinued operations. The Company's balance sheet for fiscal 2001 and
     2000 reflect the net assets of the industrial computing and communications
     segment as net assets held for sale within non-current assets. The
     Statements of Cash Flows for fiscal years 2001, 2000 and 1999 have not been
     presented on a discontinued basis. Management believes that the net
     proceeds from the disposition of these companies will exceed the carrying
     amount including any net operating losses from the discontinued segment
     through the first half of fiscal 2002, at which time the Company
     anticipates to have sold these businesses. Accordingly, the anticipated
     gains


                                      C-8
<PAGE>

     from the disposal of the segment and the operating results will not be
     reflected in the statements of operations until they are realized.

     In accordance with the terms of the Company's new Senior Secured Credit
     Facility, the proceeds from the sale of assets, including those of the
     discontinued operations, must be used to repay any outstanding term loans.

     Summary operating results and balance sheet information of the discontinued
     operations are as follows:

                                                 Year Ended March 31,
                                            2001        2000       1999
                                            -----       -----      -----
                                                 (Amounts in thousands)
     Sales                                $198,443    $203,361   $193,322
     Operating income                       (1,914)     21,304     18,638
     Net income (loss)                     (14,795)     12,726     11,979
     Accounts receivable, net               31,969      23,524
     Inventories                            36,941      28,453
     Intangible assets, net                 49,468      62,464
     Accounts payable                      (22,176)    (20,054)
     Deferred revenue                      (20,920)    (28,812)
     Other, net                                ---       7,026



C.   RECAPITALIZATION

     On May 21, 1998, CDRD Merger Corporation, a nonsubstantive transitory
     merger vehicle, which was organized at the direction of Clayton, Dubilier &
     Rice, Inc. ("CDR"), a private investment firm, was merged with and into the
     Company (the "Recapitalization" or the "Transaction") with the Company
     continuing as the surviving corporation. In the Recapitalization, (1) each
     then outstanding share of common stock, par value $0.20 per share, of the
     Company (the "Old Common Stock") was converted into the right to receive
     $47.75 in cash and 0.5 shares of common stock, no par value, of the Company
     (the "Common Stock") and (2) each then outstanding share of common stock of
     CDRD Merger Corporation was converted into one share of Common Stock.

     Upon consummation of the Recapitalization, Clayton, Dubilier & Rice Fund V
     Limited Partnership, an investment partnership managed by CDR ("CDR Fund
     V"), held approximately 91.8% of the Company's Common Stock and other
     stockholders held approximately 8.2% of the Common Stock. The Transaction
     was treated as a recapitalization for financial reporting purposes.
     Accordingly, the historical basis of the Company's assets and liabilities
     were not affected by these transactions. As of March 31, 2001, CDR Fund V
     and Clayton, Dubilier & Rice Fund VI Limited Partnership ("CDR Fund VI")
     held approximately 81% of the Common Stock outstanding.

     In connection with the Recapitalization, the Company incurred a charge of
     $40.8 million from continuing operations, for the cancellation payments of
     employee stock options and compensation expense due to the acceleration of
     unvested stock options, and $3.5 million for certain other expenses
     resulting from the Recapitalization, including employee termination
     expense. The Company incurred an additional $41.3 million in expenses, of
     which $27.3 million was capitalized and

                                      C-9
<PAGE>

     is being amortized over the life of the Senior Secured Credit Facilities
     and Senior Subordinated Notes. The remaining $14.0 million was charged
     directly to stockholders' equity. (See Note I. Notes Payable and Debt.)

     Recapitalization and other related costs from continuing operations during
     fiscal 2001 and 2000 totaled $9.2 million and $27.9 million, respectively,
     most of which related to termination expenses of certain executives
     including the retirement of John F. Reno, former Chairman, President and
     Chief Executive Officer of the Company, as well as other employees.


D.   RELATED PARTY

     The Company paid an annual management fee to CDR totaling $0.5 million in
     each of the three fiscal years ending March 31, 2001. In return for the
     annual management fee, CDR provides management and financial consulting
     services to the Company and its subsidiaries.

     In connection with the merger (the "WWG Merger") between a subsidiary of
     the Company and Wavetek Wandel Goltermann, Inc. ("WWG") in May 2000 and the
     concurrent establishment of the new Senior Secured Credit Facility, the
     Company paid CDR $6.0 million for services provided in connection with the
     WWG Merger and the related financing, of which $3.0 million has been
     allocated to deferred debt issuance costs and $3.0 million allocated to
     additional paid-in capital in connection with the rights offering to the
     Company's other stockholders undertaken by the Company in June 2000.

     On May 19, 1999, Ned C. Lautenbach, a principal of CDR, became the
     Company's Chairman, President and Chief Executive Officer. Mr. Lautenbach
     has not received direct compensation from the Company for these services.
     However, his compensation for any services is covered in the above
     mentioned management agreement.


E.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation. The consolidated financial statements include
     the accounts of the parent company and its wholly owned domestic and
     international subsidiaries. Intercompany accounts and transactions have
     been eliminated. Certain prior year amounts have been reclassified to
     conform to the current year.

     Use of Estimates. The preparation of financial statements in conformity
     with generally accepted accounting principles requires management to make
     certain estimates and assumptions that affect the reported amount of assets
     and liabilities and disclosure of contingent assets and liabilities at the
     date of the financial statements and the reported amounts of revenues and
     expenses during the reported period. Significant estimates in these
     financial statements include allowances for accounts receivable, net
     realizable value of inventories, tax valuation reserves, nonrecurring
     charges, and the carrying values of discontinued operations. Actual results
     could differ from those estimates.

     Fair Value of Financial Instruments. The fair value of cash and cash
     equivalents, accounts receivable and accounts payable approximated book
     value at March 31, 2001 and 2000. Other financial instruments include debt
     and interest

                                     C-10
<PAGE>

rate swaps. (See Note I. Notes Payable and Debt and Note J. Interest Rate Swap
Contracts.)

Concentration of Credit Risk. Financial instruments that potentially subject the
Company to concentrations of credit risk consist primarily of cash investments,
accounts receivable and interest rate swap contracts.

The Company maintains its cash accounts in various institutions worldwide and
places its cash investments in prime quality certificates of deposit, commercial
paper, or mutual funds.

Credit risk related to its accounts receivable are limited due to the large
number of customers and their dispersion across many business and geographic
areas. However, a significant amount of trade receivables are with customers
within the telecommunications industry. The Company extends credit to its
customers based upon an evaluation of the customer's financial condition and
credit history and generally does not require collateral. The Company has
historically incurred insignificant credit losses. At March 31, 2001, the
Company provided approximately $9.0 million for doubtful accounts ($2.0 million
at March 31, 2000 and $1.6 million at March 31, 1999). The fiscal 2001 provision
is significantly higher than previous years due primarily to the WWG Merger as
well as risk and uncertainty of competitive local exchange carriers' (or CLEC)
customers.

The Company's counterparties to the agreements relating to the Company's
investments and interest rate swap contracts consist of various major
corporations and financial institutions of high credit standing. The Company
does not believe there is significant risk of non-performance by these
counterparties.

Cash Equivalents. Cash equivalents represent highly liquid investment
instruments with an original maturity of three months or less at the time of
purchase.

Inventories. Inventories are stated at the lower of cost (first-in, first-out)
or market, not in excess of net realizable value.

Property, Plant and Equipment. Property, plant and equipment is principally
recorded at cost and depreciated on a straight-line basis over the estimated
useful lives of the assets as follows:

     Buildings                                        30 years
     Leasehold improvements                           Remaining life of lease
     Machinery and equipment                          7 to 10 years
     Furniture and fixtures                           5 years
     Computer software/hardware                       3 years
     Tooling                                          3 years
     Vehicles                                         3 years

Maintenance and repairs' expenditures are expensed when incurred. When a fixed
asset is disposed of, the cost of the asset and any related accumulated
depreciation is written off and any gain or loss is recognized.



                                     C-11
<PAGE>

Intangible Assets. Intangible assets consist primarily of goodwill and product
technology acquired in business combinations. The excess of cost over the fair
market value of net assets (goodwill) is primarily amortized on a straight-line
basis over 3 to 30 years though averaging 6 years. Product technology and other
intangible assets are amortized on a straight-line basis primarily over six
years, but in no event longer than their expected useful lives. Amortization
expense from continuing operations related to product technology was $31.7
million in fiscal 2001, $1.6 million in fiscal 2000 and $1.5 million in fiscal
1999. Amortization expense from continuing operations related to goodwill was
$59.6 million in fiscal 2001, $8.8 million in fiscal 2000, and $2.7 million in
fiscal 1999. Amortization expense from continuing operations related to other
intangibles was $18.5 million in fiscal 2001, $1.9 million in fiscal 2000 and
$2.0 million in fiscal 1999.

Long-Lived Assets. The Company periodically evaluates the recoverability of
long-lived assets, including intangibles, whenever events and changes in
circumstances indicate that carrying amount of an asset may not be fully
recoverable. When indicators of impairment are present, the carrying values of
the assets are evaluated in relation to the operating performance and future
undiscounted cash flows of the underlying business. The net book value of the
underlying assets is adjusted to fair value if the sum of the expected
undiscounted cash flows is less than book value. Fair values are based on quoted
market prices and assumptions concerning the amount and timing of estimated
future cash flows and assumed discount rates, reflecting varying degrees of
perceived risk.

Deferred Debt Issuance Costs. In connection with the Recapitalization and the
new Senior Secured Credit Facility, the Company incurred financing fees that are
being amortized over the life of the Senior Secured Credit Facilities and Senior
Subordinated Notes. (See Note I. Notes Payable and Debt.)

Other Comprehensive Income (Loss). The functional currency for the majority of
the Company's foreign operations is the applicable local currency. The
translation from the local foreign currencies to U.S. dollars is performed for
balance sheet accounts using the exchange rates in effect at the balance sheet
date and for revenue and expense accounts using a weighted average exchange rate
during the period. The unrealized gains or losses resulting from such
translation are included in stockholders' equity (deficit). The realized gains
or losses resulting from foreign currency transactions are included in other
income.

Other comprehensive income (loss) that is shown in the Statement of
Stockholders' Equity (Deficit) consists only of foreign currency translation
adjustments.

Stock-Based Compensation. The Company accounts for stock-based awards to its
employees using the intrinsic value-based method as prescribed in Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. The Company has adopted the pro forma
footnote disclosure provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," which prescribes
the recognition of compensation expense based on the fair value of options on
the grant date using the Black-Scholes valuation model with compensation costs
recognized ratably over the vesting period.

Unearned Compensation. From the time of the Recapitalization through October
2000, the Company issued non-qualified stock options to primarily all employees
and non-employee directors at an exercise price equal to the fair market value
as


                                      C-12
<PAGE>

determined by the Company's board of directors. The exercise price may or may
not have been equal to the trading price in the public market on the dates of
the grants. The Company recorded a charge equal to the difference between the
closing price in the public market and the exercise price of the options within
unearned compensation within stockholders' deficit. This unearned compensation
charge is being amortized to expense over the options' vesting periods of up to
five years.

The Board of Directors voted on October 23, 2000 to issue non-qualified stock
options based on the average of the highest and lowest trading prices in the
public market as of the day of the grant for all stock options issued after that
date.

The Company adjusts unearned compensation for employees and non-employee
directors who have terminated employment with the Company whose options, which
were granted at an exercise price lower than the trading price on the open
market, were not fully vested at the time of departure. The adjustment reverses
any amortization charge recognized for unvested options and eliminates any
related remaining unearned compensation.

Revenue Recognition. The Company has adopted the recommendations of Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101"), effective April 1, 2000. The application of SAB 101 did not have any
impact on its Financial Statements.

The Company's revenues are primarily derived from product sales. The Company
recognizes revenue when it is realized or realizable and earned. The Company
considers revenue realized or realizable and earned when it has persuasive
evidence of an arrangement, the product has been shipped or the services have
been provided to the customer, the sales price is fixed or determinable and
collectibility is reasonably assured.

Revenue from product sales is generally recognized at the time the products are
shipped to the customer. In certain cases where the Company has not transferred
the risks and rewards of ownership, revenue recognition is deferred. Upon
shipment, the Company also provides for estimated costs that may be incurred for
product warranties and sales returns. Service revenue is deferred and recognized
over the contract period or as services are rendered.

Revenue on long-term contracts is recognized using the completed contract basis
or the percentage of completion basis, as appropriate. Profit estimates on long-
term contracts are revised periodically based on changes in circumstances and
any losses on contracts are recognized in the period that such losses become
known. Generally, the terms of long-term contracts provide for progress billing
based on completion of certain phases of work.

Revenue from software sales is generally recognized upon delivery provided that
a contract has been executed, there are no uncertainties regarding customer
acceptance and that collection of the related receivable is probable.

Product Development Expense. Costs relating to research and development are
expensed as incurred. Internal software development costs that qualify for
capitalization are not significant.


                                      C-13
<PAGE>

     Warranty Costs. The Company generally warrants its products for one to
     three years after delivery. A provision for estimated warranty costs is
     recorded at the time revenue is recognized.

     Interest Rate Swap Contracts. The Company uses interest rate swap contracts
     to effectively fix a portion of its variable rate Term Loan Facility to a
     fixed rate to reduce the impact of interest rate changes on future income.
     The Company does not hold or issue financial instruments for trading or
     speculative purposes. The differential to be paid or received under these
     agreements is recognized within interest expense. (See Note J. Interest
     Rate Swap Contracts.)

     Income Taxes. Deferred tax liabilities and assets are recognized for the
     expected future tax consequences of assets and liabilities that have been
     included in the financial statements or tax returns. Under this method,
     deferred tax liabilities and assets are determined based on the difference
     between the tax bases of assets and liabilities and their reported amounts
     using enacted tax rates in effect for the year in which the differences are
     expected to reverse. Tax credits are generally recognized as reductions of
     income tax provisions in the year in which the credits arise. (See Note K.
     Income Taxes.)

     The Company does not provide for U.S. income tax liabilities on
     undistributed earnings of its foreign subsidiaries which are considered
     indefinitely reinvested and accordingly no provision has been made for
     taxes that might be payable upon remittance of such non-U.S. earnings.
     However, at the point in time that the Company determines that such non-
     U.S. earnings are not permanently invested, provision would be made for
     U.S. income taxes that would be due upon remittance of such dividends.


     New Pronouncements

     On June 15, 1998, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards No. 133. "Accounting for Derivative
     Instruments and Hedging Activities" ("FAS 133"). FAS 133 was amended by
     Statement of Financial Accounting Standards No. 137, which modified the
     effective date of FAS 133 to all fiscal quarters of all fiscal years
     beginning after June 15, 2000. FAS 133, as amended, requires that all
     derivative instruments be recorded on the balance sheet at their fair
     value. Changes in the fair value of derivatives are recorded each period in
     current earnings or other comprehensive income, depending on whether a
     derivative is designated as part of a hedge transaction and, if it is, the
     type of hedge transaction. The Company assessed the impact of the adoption
     of FAS 133 on April 1, 2001, and determined that it will not have a
     significant impact on its results of operations and its financial position.


F.   ACQUISITIONS AND DIVESTITURES

     ACQUISITIONS DURING FISCAL 2001
     -------------------------------

     Wavetek Wandel Goltermann,Inc.

     On May 23, 2000, the Company merged one of its wholly owned subsidiaries
     with WWG for consideration of $402.0 million. The WWG Merger was accounted
     for using the purchase method of accounting. Purchased incomplete
     technology of $51 million had

                                      C-14
<PAGE>

     not reached technological feasibility, had no alternative future use and
     was written off to the income statement in the fiscal year 2001. The excess
     purchase price, based upon an independent valuation, was allocated to other
     intangibles.

     The purchase accounting is summarized as follows:


          Aggregate purchase price:
           Cash in exchange for WWG stock                            $249,562
           Cash in exchange for WWG options                             8,248
           Acterna common stock, 14,987 shares                        130,000
           Acquisition costs                                           14,228
                                                                     --------
                 Total purchase price                                 402,038

          Plus net tangible liabilities acquired                      150,504
                                                                     --------
                 Total purchase price in excess of net assets
                  acquired                                           $552,542
                                                                     ========
          Allocations of purchase price:
           Inventory step-up to fair value                           $ 35,000
           In-process research and development acquired                51,000
           Allocation to land and buildings                            27,000
           Deferred tax liabilities                                   (49,447)
           Core technology                                            162,180
           Workforce                                                   45,151
           Backlog                                                      6,841
           Goodwill                                                   274,817
                                                                     --------
                                                                     $552,542
                                                                     ========


     Superior Electronics Group, Inc., doing business as Cheetah Technologies

     On August 23, 2000, the Company acquired Superior Electronics Group, Inc.,
     a Florida corporation doing business as Cheetah Technologies ("Cheetah")
     for a purchase price of $171.5 million. The acquisition was accounted for
     using the purchase method of accounting. The Company funded the purchase
     price with borrowings of $100 million under its Senior Secured Credit
     Facility (See Note I. Notes Payable and Debt) and approximately $65.7
     million from its existing cash balance. Purchased incomplete technology of
     $5 million had not reached technological feasibility, had no alternative
     future use and was written off to the income statement in the fiscal year
     2001. The excess purchase price was allocated to other intangibles based
     upon an independent valuation.

     In connection with the Cheetah acquisition, options to purchase shares of
     Cheetah were converted into options to purchase shares of Acterna common
     stock. The fair value as of the announcement date of the acquisition of all
     options converted was $5.8 million using an option-pricing model. An
     additional charge of $6.7 million relates to the unearned intrinsic value
     of unvested options as of the closing date of the acquisition, and has been
     recorded as deferred compensation to be amortized over the remaining
     vesting period of the options (the weighted average vesting period is
     approximately three years).


                                      C-15
<PAGE>

The purchase accounting is summarized as follows:

<TABLE>
<S>                                                                                    <C>
          Aggregate purchase price:
           Cash paid                                                                   $164,723
           Add fair value of Cheetah stock options converted to Acterna
             stock options                                                                5,754
           Acquisition costs                                                                997
                                                                                       --------
              Total purchase price                                                      171,474

          Less net assets acquired                                                      (15,073)
                                                                                       --------
              Total purchase price in excess of net assets acquired                    $156,401
                                                                                       ========
          Allocations of purchase price:
           Inventory step-up to fair value                                             $    750
           In-process research and development acquired                                   5,000
           Deferred compensation related to unvested stock options
               assumed by the Company                                                     6,720

           Core technology                                                               48,300
           Workforce                                                                      3,900
           Backlog                                                                        3,300
           Other intangibles                                                                700
           Goodwill                                                                      87,731
                                                                                       --------
                                                                                       $156,401
                                                                                       ========
</TABLE>

     The final allocation of the purchase price of Cheetah is dependent upon the
     Company's decision to consolidate certain manufacturing operations.


     ACQUISITIONS DURING FISCAL 2000
     -------------------------------


     WPI Husky Technology, Inc., WPI Oyster Termiflex Limited, WPI Husky
     Technology Limited and WPI Husky Technology GmbH

     On February 24, 2000 the Company, through one of its wholly owned
     subsidiaries, purchased certain assets and liabilities of WPI Husky
     Technology, Inc., and WPI Oyster Termiflex Limited, and the stock of WPI
     Husky Technology Limited and WPI Husky Technology GmbH (collectively
     "Itronix UK"), all of which were subsidiaries of WPI, Inc. The total
     purchase price for Itronix UK totaled approximately $34.8 million in cash
     (of which approximately $30 million was borrowed to finance the
     acquisition). The acquisition was accounted for using the purchase method
     of accounting and resulted in approximately $30 million of goodwill that is
     being amortized on a straight-line basis over 5 years. The operating
     results of Itronix UK have been included in the Company's consolidated
     financial statements presented within discontinued operations since
     February 23, 2000. The Company intends to sell this acquired company in
     connection with the sale of the other business units within discontinued
     operations within the first half of fiscal 2002. Itronix UK distributes
     rugged field computer systems including the provision of related services
     for incorporation into customers' specific applications.

                                      C-16
<PAGE>

  ICS Advent (Europe) Ltd.

  On January 4, 2000, the Company purchased the remaining outstanding stock of
  ICS Advent (Europe) Ltd. ("ICS UK") for (Pounds)3.0 million (approximately
  $4.9 million) in cash.  The Company previously owned approximately 25% of ICS
  UK.  The acquisition was accounted for using the purchase method of accounting
  and generated approximately $4.0 million of goodwill that is being amortized
  on a straight-line basis over 5 years.  The operating results of ICS UK have
  been included in the Company's financial statements presented within
  discontinued operations, since January 1, 2000.  The Company intends to sell
  this acquired company in connection with the sale of the other business units
  within discontinued operations within the first half of fiscal 2002.  ICS UK
  is primarily a distributor of mission-critical computer systems to the
  defense, factory-automation, data and telecommunications markets within Europe
  as well as a distributor of rack-mounted computers supplied by the Company's
  ICS Advent subsidiary.


  Applied Digital Access, Inc.

  On November 1, 1999, the Company acquired all the outstanding stock of Applied
  Digital Access, Inc. ("ADA") for a total purchase price of approximately $81.0
  million in cash.  The acquisition was accounted for using the purchase method
  of accounting and resulted in $46.3 million of excess of purchase price over
  cost that is being amortized over three years.  The operating results of ADA
  have been included in the consolidated financial statements since November 1,
  1999 and is included within the Company's Communications Test segment.


  Sierra Design Labs

  On September 10, 1999, the Company purchased the outstanding stock of Sierra
  Design Labs ("Sierra") for a total purchase price of $6.3 million in cash.
  The acquisition was accounted for using the purchase method of accounting and
  resulted in $4.9 million of goodwill, which is being amortized over ten years.
  The operating results of Sierra have been included in the consolidated
  financial statements since September 10, 1999 and is included within the
  Company's Other Subsidiaries.


  Flight TECH

  In February 1999, the Company, through one of its wholly owned subsidiaries,
  acquired Flight TECH of Hillsboro, Oregon for $2 million in cash.  The
  acquisition was accounted for using the purchase method of accounting and
  resulted in approximately $1.9 million of goodwill that is being amortized on
  a straight-line basis over 30 years.  The operating results of Flight TECH
  have been included in the Company's financial statements since February 1999
  within Other Subsidiaries.  Flight TECH is an inflight entertainment
  manufacturer specializing in equipment for small and medium jets, and
  turboprop aircraft.




                                      C-17
<PAGE>

  ACQUISITION DURING FISCAL 1999
  ------------------------------

  Pacific Systems Corporation

  On June 19, 1998, the Company, through one of its indirectly wholly owned
  subsidiaries, acquired all of the outstanding stock of Pacific Systems
  Corporation of Kirkland, Washington ("Pacific") for a total purchase price of
  approximately $20 million in cash, which includes an incentive earnout.  The
  acquisition was accounted for using the purchase method of accounting and
  resulted in $18.0 million of goodwill that is being amortized on a straight-
  line basis over 30 years.  The operating results of Pacific have been included
  in Acterna's consolidated financial statements within Other Subsidiaries since
  June 19, 1998.  Pacific designs and manufactures customer-specified avionics
  and integrated cabin management.

  The goodwill generated from these acquisitions during fiscal 2000 was
  calculated based on the purchase price less the net assets acquired, as
  follows:

                                                            2000
                                                            ----
                                                        (Amounts in
                                                         thousands)

    Total purchase price                                 $ 126,891
                                                         ---------
    Less net assets acquired:
      Cash                                                  13,664
      Accounts receivable                                   12,638
      Inventories                                           19,684
      Deferred tax asset                                    20,099
      Other assets                                          11,949
      Notes payable                                           (124)
      Accounts payable                                     (11,686)
      Accrued liabilities                                  (14,431)
      Long-term debt                                          (139)
                                                         ---------
                                                            51,654
                                                         ---------
    Goodwill                                             $  75,237
                                                         =========


  The following unaudited pro forma information presents a summary of
  consolidated results of operations of the Company as if the acquisitions had
  occurred at the beginning of the fiscal year presented, with pro forma
  adjustments to give effect to amortization of goodwill and intangibles,
  interest expense on acquisition debt, and certain other adjustments, together
  with related income tax effect.  These pro forma amounts do not purport to be
  indicative of the results that would have actually been obtained if the
  acquisitions had occurred as of the beginning of the periods presented, or
  that may be obtained in the future.


                                                       2001          2000
                                                       ----          ----
                                                  (Amounts in thousands except
                                                         per share data)

                                                      (unaudited)
     Revenue                                          $1,266,401     $ 995,789
     Net loss from continuing operations              $ (191,518)    $(111,108)
     Loss per share from continuing operations:
       Basic and diluted                              $    (1.01)    $   (0.75)
     Weighted average shares:
       Basic and diluted                                 189,223       147,998



                                      C-18
<PAGE>

     DIVESTITURES


     ComCoTec, Inc.

     On June 30, 1998, the Company sold the assets of ComCoTec, Inc.
     ("ComCoTec") located in Lombard, Illinois to The Potomac Group, Inc. for
     $21 million. Acterna recorded a pre-tax gain on $15.9 million on the sale
     of the assets, which was included in other income. Sales and operating
     results were insignificant for the periods ended March 31, 1999 and 1998.


     Data Views Corporation

     In June 2000, the Company sold the assets and liabilities of DataViews
     Corporation ("DataViews"), a subsidiary that manufactures software for
     graphical-user-interface applications, to GE Fanuc for $3.5 million. The
     sale generated a loss of approximately $0.1 million. Prior to the sale, the
     results of DataViews were included in the Company's financial statements
     within "Other Subsidiaries".


     OTHER ACQUISITIONS AND DIVESTITURES
     -----------------------------------

     In the normal course of business, the Company has acquired and sold small
     companies that, in the aggregate, do not have a material impact on the
     financial results of the Company for the periods presented.


G.   INTANGIBLE ASSETS

     Intangible assets, acquired primarily from business acquisitions, are
     summarized as follows (See Note F. Acquisitions and Divestitures):


                                                           2001        2000
                                                        -------     -------
                                                       (Amounts in thousands)

        Goodwill                                       $426,612     $67,328
        Core technology                                 228,042       9,236
        Other intangible assets                          70,709       4,177
                                                       --------     -------

                                                        725,363      80,741
        Less accumulated amortization                   131,700      22,233
                                                       --------     -------
          Total                                        $593,663     $58,508
                                                       ========     =======


                                      C-19
<PAGE>


H.   NET INCOME (LOSS) PER SHARE

     The computation for net income (loss) per share is as follows:


<TABLE>
<CAPTION>
                                                                   2001            2000            1999
                                                                 -------         -------         -------
                                                               (Amounts in thousands except per share data)
<S>                                                            <C>             <C>             <C>
Net income (loss):
   Continuing operations                                       $(161,158)       $ (6,714)       $ (5,534)
   Discontinued operations                                           ---          12,726          11,979
   Extraordinary loss                                            (10,659)            ---             ---
                                                               ---------        --------        --------
Net income (loss)                                              $(171,817)       $  6,012        $  6,445
                                                               =========        ========        ========

BASIC AND DILUTED:
Common stock outstanding, net of treasury stock,
 beginning of period                                             122,527         120,665          16,864
Weighted average common stock and treasury stock
 issued during the period                                         57,188             886         104,331
Weighted average common stock and treasury stock
 repurchased                                                         ---             ---         (14,983)
                                                               ---------        --------        --------
                                                                 179,715         121,551         106,212

Bonus element adjustment related to rights offering                4,166          26,761          23,384
                                                                --------        --------        --------
Weighted average common stock outstanding, net of
 treasury stock, end of period                                   183,881         148,312         129,596
                                                                ========        ========        ========

Net income per common share basic and diluted:
  Continuing operations                                         $  (0.87)       $  (0.05)       $  (0.04)
  Discontinued operations                                            ---            0.09            0.09
  Extraordinary loss                                               (0.06)            ---             ---
                                                               ---------        --------        --------
Net income per common share                                    $   (0.93)       $   0.04        $   0.05
                                                               =========        ========        ========
</TABLE>

     On May 23, 2000 in connection with the WWG Merger, the Company issued
     43,125,000 shares of common stock to CDR Fund V and CDR Fund VI at a price
     of $4.00 per share. In order to reverse the diminution of all other common
     stockholders as a result of shares issued in connection with the WWG
     Merger, the Company made a rights offering to all its common stock
     stockholders (including CDR) of record on April 20, 2000 (the "Offering").
     CDR Fund V elected to waive its right to participate in this Rights
     Offering. Thus, 4,983,000 shares of common stock were covered under the
     Offering to stockholders other than


                                      C-20
<PAGE>

     CDR Fund V. As a result of these transactions, the Company granted a right
     to all stockholders other than CDR Fund V to purchase 4,983,000 shares of
     common stock at a price of $4.00 per share. The closing trading price of
     the common stock on May 22, 2000, immediately prior to the sale of the
     common stock to CDR Fund V, was $11.25.

     For purposes of calculating weighted average shares and earnings per share,
     the Company has treated the sale of common stock to the CDR Funds and the
     sale of common stock to all other stockholders as a rights offer. Since the
     common stock was offered to all stockholders at a price that was less than
     that of the market trading price (the "bonus element"), a retroactive
     adjustment of 1.22 per share was made to weighted average shares to reflect
     this bonus element.

     In fiscal 2001 and 2000 the Company excluded from its diluted weighted
     average shares outstanding the effect of the weighted average common stock
     equivalents (13.5 million in fiscal 2001 and 11.4 million in fiscal 2000)
     as the Company incurred a net loss from continuing operations. The
     inclusion of the common stock equivalents has been excluded from the
     calculation of diluted weighted average shares outstanding because
     inclusion would result in an antidilutive effect on net loss per common
     share from continuing operations.

I.   NOTES PAYABLE AND DEBT

     Notes Payable

     Certain of the Company's foreign subsidiaries have agreements with banks
     that provide for short-term revolving advances and overdraft facilities
     (the "Overdraft Facilities") in an aggregate total amount of approximately
     $30.7 million. At March 31, 2001, aggregate amounts of $8.5 million had
     been borrowed under these facilities. Certain of these bank agreements also
     provide for long-term borrowings and are generally secured by the assets of
     the local subsidiary and guaranteed by the Company. Most of these
     agreements do not have stated maturity dates, but are cancelable by the
     banks at any time and, accordingly, are classified as short-term
     liabilities.

     Revolving borrowings under these Overdraft Facilities vary significantly by
     country. The average interest rate on the Overdraft Facilities, which
     ranges from approximately 15% to 20%, is primarily due to the high cost of
     borrowing in Brazil. Approximately 83% of the outstanding balance on the
     Overdraft Facilities is with banking institutions in Brazil.





                                      C-21
<PAGE>
     Long-Term Debt

     Long-term debt is summarized below:

                                                          2001       2000
                                                        --------   ---------
                                                      (Amounts in thousands)
     Senior secured credit facilities                 $  776,354    $304,861
     Senior subordinated notes                           275,000     275,000

     Capitalized leases and other debt                    27,277          73
                                                      ----------    --------
       Total debt                                      1,078,631     579,934
                                                      ----------    --------
     Less current portion                                 22,248       7,646
                                                      ----------    --------
       Long-term debt                                 $1,056,383    $572,288
                                                      ==========    ========


     The book value of the debt under the Senior Secured Credit Facilities
     represents fair market value at March 31, 2001 and 2000. The fair market
     value of the Senior Subordinated Notes was $226.9 million and $250.3
     million at March 31, 2001 and 2000, respectively.

     Senior Secured Credit Facilities

     In connection with the WWG Merger, the Company refinanced certain of its
     debt and entered into a new senior secured credit facility (the "Senior
     Secured Credit Facility") which provided for up to $175.0 million in
     revolving credit borrowings (the "Revolving Credit Facility") and $685.0
     million of term loan borrowings. As of March 31, 2001, the Company had
     $776.4 million of indebtedness outstanding under the Senior Secured Credit
     Facility consisting of $668.4 million in term loans and $108.0 million in
     revolving credit borrowings. In addition, the Company had outstanding
     $275.0 million principal amount of 9 3/4% senior subordinated notes (the
     "Senior Subordinated Notes") and $27.2 million in other debt obligations.
     As of March 31, 2000, the Company had $579.9 million of debt. The amount
     under the Revolving Credit Facility that remained undrawn at March 31, 2001
     was approximately $43.7 million, including outstanding letters of credit
     which reduces the borrowing capacity of the Company under the terms of the
     Revolving Credit Facility.

     At the time of the WWG Merger, the Company acquired and subsequently repaid
     approximately $118.6 million of WWG revolving credit debt and $94.1 million
     of outstanding WWG bonds.

     The loans under the Senior Secured Credit Facility bear interest at
     floating rates based upon the interest rate option elected by the Company.
     These rates are based on LIBOR plus an applicable margin ranging from 2.75%
     to 3.25% per annum. To fix interest charged on a portion of its debt, the
     Company entered into interest rate hedge agreements. After giving effect to
     these agreements, $195 million of the Company's debt is currently subject
     to an effective average annual fixed rate of 5.718% per annum until
     September 2002.

     The annual weighted-average interest rate on the loans under the Company's
     senior secured credit facilities was 9.8% and 7.85% for the fiscal years
     ended March 31, 2001 and 2000, respectively. Due to the recent reduction in
     the prime interest rate, the Company's 90-day LIBOR borrowing rate plus
     margin at March 31, 2001 was 7.65%. Interest on the Senior Subordinated
     Notes accrues at the rate of 9 3/4% per annum and is payable semi-annually
     in arrears on each May 15 and November 15 through 2008.

     The Company is also required, under the terms of the Senior Secured Credit
     Facility, to pay a commitment fee based on the unused amount of the
     revolving

                                      C-22
<PAGE>

     credit facility. The rate is an annual rate, paid quarterly, and ranges
     from 0.30% to 0.50%, and is based on the Company's leverage ratio in effect
     at the beginning of the quarter. The Company paid $0.3 million and $0.3
     million in fiscal 2001 and 2000, respectively, in commitment fees.

     The mandatory repayment schedule of the Senior Secured Credit Facilities
     over the next five years and thereafter is as follows: $18.8 million in
     fiscal 2002, $25.8 million in fiscal 2003, $40.8 million in fiscal 2004,
     $44.8 million in fiscal 2005, $75.2 million in fiscal 2006, and $462.0
     million in fiscal years subsequent to fiscal 2006.

     In connection with the Recapitalization in fiscal 1999, the Company entered
     into a secured credit agreement, which consisted of a $260 million term
     loan facility and a $110 million revolving credit facility. In addition,
     the Company incurred $275 million of debt through the sale of the Senior
     Subordinated Notes. As a result of the refinancing of WWG's and the
     Company's senior bank debt during fiscal 2001, the Company recorded an
     extraordinary charge of approximately $10.7 million (net of taxes). (See
     Note P. Extraordinary Charge)

     Covenant Restrictions. The Senior Secured Credit Agreement imposes
     restrictions on the ability of the Company to make capital expenditures,
     and both the Senior Secured Credit Facility and the indenture governing
     the Senior Subordinated Notes limit the Company's ability to incur
     additional indebtedness. The covenants contained in the Senior Secured
     Credit Agreement also, among other things, restrict the ability of the
     Company and its subsidiaries to dispose of assets, incur guarantee
     obligations, prepay other indebtedness, make restricted payments, create
     liens, make equity or debt investments, make acquisitions, modify terms of
     the indenture governing the Senior Subordinated Notes, engage in mergers or
     consolidations, change the business conducted by the Company and its
     subsidiaries taken as a whole or engage in certain transactions with
     affiliates. These restrictions, among other things, preclude Acterna LLC
     from distributing assets to Acterna Corporation (which has no independent
     operations and no significant assets other than its membership interest in
     Acterna LLC), except in limited circumstances. In addition, under the
     Senior Secured Credit Agreement, the Company is required to comply with a
     minimum interest expense coverage ratio and a maximum leverage ratio. These
     financial tests become more restrictive in future years. The term loans
     under the Senior Secured Credit Facilities are governed by negative
     covenants that are substantially similar to the negative covenants
     contained in the indenture governing the Senior Subordinated Notes, which
     also impose restrictions on the operation of the Company's business.

     The Senior Secured Credit Facilities are subject to mandatory prepayments
     and reductions in an amount equal to, subject to certain exceptions, (a)
     100% of the net proceeds of (1) certain debt offerings by the Company and
     any of its subsidiaries, (2) certain asset sales or other dispositions by
     the Company or any of its subsidiaries, and (3) property insurance or
     condemnation awards received by the Company or any of its subsidiaries, and
     (b) 50% of the Company's excess cash flow (the "Recapture") (as defined in
     the Senior Secured Credit Agreement) for each fiscal year in which the
     Company exceeds a certain leverage ratio. The Senior Subordinated Notes are
     subject to certain mandatory prepayments under certain circumstances.

     During fiscal 2000 the Company was required, under the terms of the
     Recapture, to repay $15 million in Term Loan borrowings on June 30, 1999.
     The Company elected


                                      C-23
<PAGE>

     to use the $15 million in part to prepay the mandatory $8 million
     amortization due in fiscal 2000. Based on the Recapture calculations at
     March 31, 2001 and March 31, 2000, the Company was not required to make an
     additional mandatory principal reduction during fiscal 2001.


     Senior Subordinated Notes

     The Senior Subordinated Notes due 2008 will not be redeemable at the option
     of the Company prior to May 15, 2003 unless a change of control occurs.
     Should that happen, the Company may redeem the Notes in whole, but not in
     part, at a price equal to 100% of the principal amount plus the greater of
     (1) 1.0% of the principal amount of such Note and (2) the excess of (a) the
     present value of (i) redemption price of such Note plus (ii) all required
     remaining scheduled interest payments due on such Note through May 15,
     2003, over (b) principal amount of such Note on the redemption date.

     Except as noted above, the Notes are redeemable at the Company's option, in
     whole or in part, anytime on and after May 15, 2003, and prior to maturity
     at the following redemption prices:

                                                Redemption
          Period                                  Price
          ------                               ----------
          2003                                  104.875%
          2004                                  103.250%
          2005                                  101.625%
          2006 and thereafter                   100.000%


     Principal and interest payments under the Senior Secured Credit Facility
     and interest payments on the Senior Subordinated Notes have represented and
     will continue to represent significant liquidity requirements for the
     Company.

     On June 29, 2001, the Company entered into an unsecured, short-term
     revolving credit facility (the "Short-Term Credit Facility") with Credit
     Suisse First Boston and The Chase Manhattan Bank, which provides for
     revolving credit loans in an aggregate principal amount not to exceed $40
     million. The Company arranged the facility to provide additional funds for
     general corporate purposes including short-term working capital needs,
     which have increased, in part, as a result of the growth of the Company's
     business. Loans under the facility bear interest at floating rates based
     upon the interest rate option elected by the Company. The Short-Term Credit
     Facility matures on December 31, 2001. Interest and any loans outstanding
     from time to time under the Short-Term Credit Facility are expected to be
     repaid from cash generated by the Company's operations.

J.   INTEREST RATE SWAP CONTRACTS

     The Company uses interest rate swap contracts to effectively fix a portion
     of its variable rate term loans under the Senior Secured Credit Facility to
     a fixed rate in order to reduce the impact of interest rate changes on
     future income. The differential to be paid or received under these
     agreements is recognized as an adjustment to interest expense related to
     the debt. At March 31, 2001 the Company had two interest rate swap
     contracts in which the Company pays a fixed interest rate and the Company
     receives a three-month LIBOR interest rate.

<TABLE>
<CAPTION>
                        Notional                               Fixed Interest     Market Valuation
         Swap No.        Amount               Term                  Rate         at March 31, 2001
         -------        -------            ----------           -----------      -----------------
                                      (Amounts in thousands)
<S>               <C>          <C>                       <C>               <C>
            1           $ 65,000        September 30, 1998 -        5.845%            $  (389)
                                        September 30, 2001
            2           $130,000        September 30, 1998 -        5.655%            $(1,890)
                                        September 28, 2002

</TABLE>


                                      C-24
<PAGE>

  During fiscal 2001, the Company recognized a reduction in interest expense
  from the swap contracts of $1.8 million and an increase in interest expense in
  fiscal 2001 of $0.4 million.

  The valuations of derivatives transactions are indicative values based on mid-
  market levels as of the close of business of the date they are provided.
  These valuations are provided for information purposes only and do not
  represent (1) the actual terms at which new transactions could be entered
  into, (2) the actual terms at which existing transactions could be liquidated
  or unwound, or (3) the calculation or estimate of an amount that would be
  payable following the early termination of any master trading agreement to
  which the Company is a party to.

  The provided valuations of derivatives transactions are derived from
  proprietary models based upon well-recognized financial principles and
  reasonable estimates about relevant future market conditions.  The valuations
  set forth above indicate a net payment from the Company to the financial
  institution since the fixed interest rates in the contracts was higher than
  the three-month LIBOR interest rate at March 31, 2001.


K. INCOME TAXES

  The components of income (loss) from continuing operations before taxes are as
  follows:

<TABLE>
<CAPTION>
                                2001            2000           1999
                             ---------        --------       --------
                                     (Amounts in thousands)
<S>                          <C>              <C>            <C>
Domestic                     $(190,362)       $ (8,645)      $ (5,398)
Foreign                         20,822             762           (205)
                             ---------        --------       --------
 Total                       $(169,540)       $ (7,883)      $ (5,603)
                             =========        ========       ========
</TABLE>


  The components of the benefit for income taxes from continuing operations are
  as follows:


<TABLE>
<CAPTION>
                                2001             2000            1999
                              --------         --------        --------
                                      (Amounts in thousands)
<S>                           <C>              <C>             <C>
Provision for income taxes:
 United States                $ (22,374)       $ (1,334)       $   (469)
 Foreign                         15,858             213            (125)
 State                           (1,866)            (48)            525
                              ---------        --------       ---------

  Total                       $  (8,382)       $ (1,169)       $    (69)
                              =========        ========       =========
</TABLE>


                                      C-25
<PAGE>

  The components of the income tax benefit are as follows:

                                 2001           2000            1999
                              ---------       --------       ---------
                                      (Amounts in thousands)
Current:
 Federal                      $ (7,416)       $   346        $  5,435
 Foreign                        24,892            213            (125)
 State                              79             84             142
                              ---------       --------       ---------
  Total Current                 17,555            643           5,452
                              ---------       --------       ---------
Deferred:
 Federal                       (14,958)        (1,680)        ( 5,904)
 Foreign                        (9,034)           ---             ---
 State                          (1,945)          (132)            383
                              ---------       --------       ---------
 Total deferred                (25,937)        (1,812)        ( 5,521)
                              ---------       --------       ---------
 Total                        $ (8,382)       $(1,169)       $    (69)
                              =========       ========       =========

  Reconciliations between U.S. federal statutory rate and the effective tax rate
  of continuing operations before extraordinary items follow:

                                                  2001        2000        1999
                                                  ----        ----        ----
Tax at U.S. federal statutory rate              (35.0)%     (35.0)%     (35.0)%

Increases (reductions) to statutory tax rate
 resulting from:
   Foreign income subject to tax at a rate
     different than U.S. rate                     7.3        (2.9)        8.3
   State income taxes, net of federal income
     tax benefit                                 (0.7)       (0.4)        6.1
   Nondeductible purchased incomplete technology 10.5         ---         ---
   Nondeductible amortization                    10.0        31.7         7.6
   Adjustment to foreign deferred tax assets
    and liabilities for enacted changes in tax
    rates                                        (6.0)        ---         ---
   Unremitted earnings of foreign subsidiaries    6.0         ---         ---
   Nondeductible compensation                     0.7         1.4        13.9
   Foreign sales corporation tax benefit          ---       (12.1)      (14.2)
   Non-deductible meals and entertainment
     expenses                                     0.3         4.0         4.1
   Other, net                                     2.0        (1.6)        8.0
                                               ------       -----       -----
     Effective tax rate before extraordinary
       items                                     (4.9)%     (14.9)%      (1.2)%
                                               ======      ======       =====


                                     C-26
<PAGE>

  The principal components of the deferred tax assets and liabilities follow:

<TABLE>
<CAPTION>
                                                    2001           2000
                                                  -------        -------
                                                 (Amounts in thousands)
<S>                                              <C>             <C>
Deferred tax assets:
 Net operating loss and credit carryforwards     $ 53,444        $ 15,931
 Depreciation and amortization                     26,739          23,979
 Other accruals                                    12,867           4,328
 Deferred revenue                                   8,908           9,797
 Deferred compensation                              4,705           2,795
 Compensation related to stock options             16,255           9,708
 Other deferred assets                             15,756           4,652
                                                 --------        --------
                                                  138,674          71,190
Valuation allowance                               (16,189)         (5,681)
                                                 --------        --------
                                                  122,485          65,509
Deferred tax liabilities:
 Depreciation and amortization                     76,241             256
 Unremitted earnings of foreign subsidiaries       10,356
 Other deferred liabilities                           842           1,016
                                                 --------        --------
                                                   87,439           1,272
                                                 --------        --------
Net deferred tax assets                          $ 35,046        $ 64,237
                                                 ========        ========
</TABLE>


  The valuation allowance applies to state and foreign net operating loss
  carryforwards that may not be fully utilized by the Company. The increase in
  the valuation reserve relates to the net increase in these loss carryforwards.
  Realization of the net deferred tax asset is dependent upon generating
  sufficient taxable income in the appropriate taxable jurisdictions prior to
  the expiration of the net operating losses.  Although realization is not
  assured, management believes it is more likely than not that the recorded
  deferred tax assets, net of valuation allowance provided, will be realized.

  At March 31, 2001 the Company has tax net operating losses (NOL) and credit
  carryforwards expiring as follows:

                                                                 Federal &
                 U.S. Federal                       Foreign        State
                     NOLs         State NOLs         NOLs         Credits
                 ----------       ----------        ------       ---------
                                    (Amounts in thousands)
Year of
expiration:
2002 - 2007      $    ---         $    ---          $   100      $   1,400
2008 - 2013         1,200              ---           18,600          1,100
2014 - 2019         9,000           11,100              ---          1,200
2020 - 2025        63,400          107,000              ---            600
Thereafter            ---              ---           43,800          1,300
                 --------         --------        ---------      ---------
Totals           $ 73,600         $118,100        $  62,500      $   5,600
                 ========         ========        =========      =========


                                     C-27
<PAGE>

  The federal and state loss carryforwards relate primarily to tax deductions
  generated in the current year from the exercise of nonqualified stock options
  by the Company's employees.  Tax credits and foreign loss carryforwards are
  available primarily as a result of certain acquisitions.

  U.S. income taxes have not been provided for unremitted foreign earnings of
  approximately $13.8 million.  These earnings are considered to be permanently
  invested in non-U.S. operations.  The residual U.S. tax liability, if such
  amounts were remitted, would be approximately $2.4 million.


L. EMPLOYEE RETIREMENT PLANS

  The Company has a trusteed employee 401(k) savings plan for eligible U.S.
  employees. The Plan does not provide for stated benefits upon retirement.

  The Company has a nonqualified deferred compensation plan that permits certain
  key employees to annually elect to defer a portion of their compensation for
  their retirement. The amount of compensation deferred and related investment
  earnings have been placed in an irrevocable rabbi trust and recorded within
  other assets in the Company's balance sheet, as this trust will be available
  to the general creditors of the Company in the event of the Company's
  insolvency. An offsetting deferred compensation liability, which equals the
  total value of the trust at March 31, 2001 and 2000 of $10.6 million and $11.3
  million, respectively, reflect amounts due the key employees who contribute to
  the plan.  The change in the valuation is due to employee contributions, the
  Company match on the contributions, and the change in the market valuation of
  the fund.

  Corporate contributions to employee retirement plans were $8.8 million in
  fiscal 2001, $6.2 million in fiscal 2000, and  $4.9 million in fiscal 1999.

  WWG sponsors several qualified and non-qualified pension plans for its
  employees.  For those employees participating in defined benefit plans,
  benefits are generally based upon years of service and compensation or stated
  amounts for each year of service.  Assets of the various pension plans consist
  primarily of managed funds that have underlying investments in stocks and
  bonds.  WWG's policy for funded plans is to make contributions equal to or
  greater than the requirements prescribed by law in each country.

  The following table provides a reconciliation of the changes in the plans'
  benefits obligations for the year ended March 31, 2001:


                                                       2001
                                                   ------------
                                                  (In thousands)
     Purchased obligation                            $   50,712
     Service cost                                         4,373
     Interest cost                                        2,939
     Actuarial gain/loss                                  4,254
     Foreign currency exchange rate changes              (1,116)
     Benefits paid                                       (1,864)
                                                     ----------
     Obligation at March 31                          $   59,298
                                                     ==========

                                     C-28

<PAGE>

The following table provides a reconciliation of the changes in the fair value
of assets under the benefits plans for the year ended March 31, 2001:

                                                       2001
                                                       ----
                                                (In thousands)
     Fair value of plan assets acquired          $   14,084
     Actual return on plan assets                       139
     Foreign currency exchange rate changes            (786)
     Employer contributions                             816
     Benefits paid                                     (292)
                                                 ----------
     Fair value of plan assets at March 31       $   13,961
                                                 ==========

The following table represents a statement of the funded status for the year
ended March 31, 2001:


                                                       2001
                                                       ----
                                                (In thousands)
     Net amount recognized                       $   42,637
     Unrecognized net gain/loss                       2,700
                                                 ----------
     Funded status                               $   45,337
                                                 ==========

The following table provides the amounts recognized in the consolidated balance
sheets as of March 31, 2001:


                                                       2001
                                                       ----
                                                (In thousands)
      Prepaid benefit cost                       $     (370)
      Accrued benefit liability                      43,007
                                                  ---------
      Net amount recognized                      $   42,637
                                                  =========

The following table provides the components of the net periodic benefit cost for
the plans for the years ended March 31, 2001:

                                                       2001
                                                       ----
                                                (In thousands)
     Service cost                                $    4,374
     Interest cost                                    2,939
     Expected return of plan assets                    (822)
                                                 ----------
     Net periodic pension cost                   $    6,491
                                                 ==========

                                     C-29

<PAGE>


M.   STOCK COMPENSATION PLANS

     The Company maintains two Stock Option plans in which common stock is
     available for grant to key employees at prices not less than fair market
     value (110% of fair market value for employees holding more than 10% of the
     outstanding common stock) at the date of grant determined by the Board of
     Directors. Incentive or nonqualified options may be issued under the plans
     and are exercisable from one to ten years after grant.

     The Company maintains a third Stock Option plan in which common stock is
     available for grant to non-employee directors. Each eligible director is
     automatically granted a stock option to purchase 25,000 shares of stock
     when he or she is first elected to the Board of Directors.

     Stock options for all three plans vest primarily between three and five
     years.

     At the time of the Recapitalization, primarily all Company stock options
     became fully vested and exercisable. Any Company stock option that was
     outstanding immediately prior to the effective time of the Recapitalization
     was cancelled and each holder received an option cancellation payment.
     Stock options held by certain key executives were converted into equivalent
     options to purchase shares of Common Stock and were not cancelled.

     A summary of activity in the Company's option plans is as follows:

<TABLE>
<CAPTION>
                                                                      2001                   2000                   1999
                                                                    Weighted               Weighted               Weighted
                                                                    Average                Average                 Average
                                                          2001      Exercise     2000      Exercise     1999      Exercise
                                                         Shares      Price      Shares      Price      Shares       Price
                                                         ------      -----      ------      -----      ------       -----
<S>                                                    <C>          <C>       <C>          <C>       <C>          <C>
Shares under option, beginning of year                 33,384,111    $2.40    33,903,244     $1.85    2,135,719    $26.33
Impact of converting shares on date of
  of Recapitalization                                         ---                    ---             18,479,093
Options granted (at an exercise price
 of $3.25 to $27.94 in 2001, $3.25 to
 $4.00 in 2000, $2.50 to $3.187 in 1999)               12,675,790     7.62     9,537,781      3.29   16,439,511      2.54
Options exercised                                      (5,223,498)    1.84    (1,194,318)     1.24     (860,120)    15.15
Options canceled                                       (3,282,905)    4.94    (8,862,596)     1.36   (2,290,959)     9.68
                                                       ----------             ----------             ----------
Shares under option, end of year                       37,553,498    $4.02    33,384,111     $2.40   33,903,244    $ 1.85
                                                       ==========             ==========             ==========
Shares exercisable                                     12,402,897    $2.00    13,178,441     $1.66   18,420,794    $ 1.30
</TABLE>

     As of March 31, 2001 and 2000, the Company issued approximately 10.3
     million and 4.3 million stock options, respectively, at a weighted-average
     exercise price of $5.28 and $3.33, respectively, which were below the
     quoted market price on the day of grant. Options available for future
     grants under the plans were 13.4 million, 3.9 million and 4.2 million at
     March 31, 2001, 2000, and 1999, respectively.


                                     C-30
<PAGE>

The following table summarizes information about currently outstanding and
exercisable stock options at March 31, 2001:


                                                     Weighted
                                   Number of          Average       Weighted
                                    Options          Remaining       Average
                                  Outstanding       Contractual     Exercise
   Range of Exercise Price     At March 31,2001        Life           Price

   $  0.00 - $  4.00              33,073,265          7.485        $ 2.786
   $  4.01 - $  8.00               2,063,550          9.420          8.000
   $  8.01 - $ 15.00                 612,000          9.702         12.193
   $ 15.01 - $ 28.00               1,804,683          8.064         19.353
                                  ----------
      Total                       37,553,498          7.655        $4.0220
                                  ==========

The fair market value of each option granted during 2001, 2000, and 1999 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:

                                            2001           2000           1999
                                         ---------      ---------      ---------
Expected volatility                       100.00%         70.00%         45.00%
Risk-free rate of return                    6.30%          6.13%          5.38%
Expected life (in years)                    5 yrs.         5 yrs.         5 yrs.
Weighted average fair value             $  14.007       $  3.274       $  1.673
Dividend yield                               0.00%          0.00%          0.00%

Had compensation cost for the Company's stock-based compensation plans been
recorded based on the fair value of awards or grant date consistent with the
method prescribed by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", the Company's net income and earnings
per share would approximate the pro forma amounts indicated below:

                      2001                  2000                 1999
                ------------------    ------------------    ------------------
                As           Pro      As           Pro      As           Pro
                Reported     Forma    Reported     Forma    Reported     Forma
                --------      -----   --------     -----    --------     -----
                               (Amounts in thousands except per share)

Net income      $(171,817)  $(185,166)  $6,012      $2,579   $6,445     $(7,510)
Net income
 per share:
  Basic         $   (0.93)  $   (1.01)  $ 0.04      $ 0.02   $ 0.05     $ (0.06)
  Diluted       $   (0.93)  $   (1.01)  $ 0.04      $ 0.02   $ 0.05     $ (0.06)

  The effect of applying FAS123 in this pro forma disclosure is not indicative
  of future amounts. Additional awards in future years are anticipated.


                                      C-31
<PAGE>

N. COMMITMENTS AND CONTINGENCIES

     The Company has operating leases from continuing operations covering plant,
     office facilities, and equipment that expire at various dates through 2006.
     Future minimum annual fixed rentals required during the years ending in
     fiscal 2002 through 2006 under noncancelable operating leases having an
     original term of more than one year are $16.6 million, $13.1 million, $10.8
     million, $7.3 million, and $4.5 million, respectively. The aggregate
     obligation subsequent to fiscal 2006 is $11.3 million. Rent expense was
     approximately $16.2 million, $7.3 million and $7.1 million in fiscal 2001,
     2000 and 1999, respectively.

     The Company is a party to several pending legal proceedings and claims.
     Although the outcome of such proceedings and claims cannot be determined
     with certainty, the Company's counsel and management are of the opinion
     that the final outcome should not have a material adverse effect on the
     Company's operations or financial position.

     In 1994, the Company sold its radar detector business to Whistler
     Communications of Massachusetts. On June 27, 1996, Cincinnati Microwave,
     Inc. ("CMI"), filed an action in the United States District Court for the
     Southern District of Ohio against the Company and Whistler Corporation,
     alleging willful infringement of CMI's patent for a mute function in radar
     detectors. On September 26, 2000, the Federal District Court Judge granted
     the Company's motion for partial summary judgment on the affirmative
     defense of laches, and the case was administratively terminated. The
     decision was appealed by CMI on October 24, 2000. The appeal has been fully
     briefed and the Company is awaiting a hearing date.

O.  INCREASE IN AUTHORIZED SHARES OF COMMON STOCK

     On April 28, 2000 the Board of Directors amended the Certificate of
     Incorporation of the Company by increasing the number of shares of the
     Company's common stock to be issued from 200,000,000 to 350,000,000.

P.  EXTRAORDINARY CHARGE

    In connection with the WWG Merger, the Company recorded an extraordinary
    charge of approximately $10.7 million (net of an income tax benefit of $6.6
    million), of which $7.3 million (pretax) related to a premium paid by the
    Company to WWG's former bondholders for the repurchase of WWG's senior
    subordinated debt outstanding prior to the WWG Merger. In addition, the
    Company booked a charge of $10.0 million (pretax) for the unamortized
    deferred debt issuance costs that originated at the time of the May 1998
    Recapitalization.

Q.  SEGMENT INFORMATION AND GEOGRAPHIC AREAS

    Segment Information.

    The Company is currently managed in one business segment: communications
    test. This segment tests, develops, manufactures and markets instruments,
    systems, software and services to test, deploy, manage and optimize
    communications networks and equipment. The Company offers products that test
    and manage the performance of equipment found in modern, converged networks,
    including optical transmission systems for data communications, voice
    services, wireless voice and


                                      C-32
<PAGE>

data services, cable services, and video delivery. The Company also has other
subsidiaries ("Other Subsidiaries") that, in the aggregate, are not reportable
as a segment for financial reporting purposes. These Other Subsidiaries include
AIRSHOW, Inc., which is a provider of systems that deliver real-time news,
information and flight data to aircraft passengers. AIRSHOW's systems are
marketed to commercial airlines and private aircraft owners. Other Subsidiaries
also includes da Vinci Systems, Inc. ("da Vinci") and DataViews, Inc.
("DataViews"). da Vinci provides digital color enhancement systems used in the
production of television commercials and programming. da Vinci's products are
sold to post-production and video production professionals and producers of
content for standard- and high-definition television market. DataViews, Inc.,
was sold in June 2000. In years prior to fiscal 2000, the Company's consolidated
statements of income and the Other Subsidiaries section of this Note included
the results of operations of two subsidiaries which have since been divested:
ComCoTec, Inc. was sold in June 1998, and Parallax Graphics, which was
liquidated during fiscal 1999.

The Company measures the performance of its subsidiaries by its respective
earnings before interest, taxes and amortization of intangibles and amortization
of unearned compensation ("EBITA"), which excludes non-recurring and one-time
charges. Included in the segment's EBITA is an allocation of corporate expenses.
The information below includes sales and EBITA for the Company's communications
test segment and its Other Subsidiaries.

Corporate EBITA is comprised of a portion of the total corporate general and
administrative expense that has not been allocated to the subsidiaries.
Corporate assets are comprised primarily of cash, deferred financing fees, and
deferred taxes.

The Company is a multi-national corporation with continuing operations both in
the United States and Europe as well as distribution and sales offices in the
Far East and Latin America.

The accounting policies for the segment are the same as those described in the
summary of significant accounting policies. (See Note E. Summary of Significant
Accounting Policies.) In order to conform to the requirements of Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", the operating segment information for the
fiscal years 2000 and 1999 has been restated.

No single customer accounted for more than 10% of sales from continuing
operations during fiscal 2001, 2000, and 1999.



                                      C-33
<PAGE>

<TABLE>

                                                   2001           2000           1999
                                                  -------        -------        -------
                                                      (Amounts in thousands)
<S>                                             <C>              <C>          <C>
Communications test segment:
 Net sales                                       $1,052,747       $349,886       $238,942
 Depreciation and amortization                   $  129,272       $ 15,441       $  8,845
 EBITA                                           $  139,498       $ 62,447       $ 42,800
 Total assets                                    $1,109,270       $179,338       $ 71,453
 Capital expenditures                            $   35,339       $ 13,629       $  5,147

Other subsidiaries:
 Net sales                                          115,068        103,353         90,590
 Depreciation and amortization                        4,277          3,320          2,591
 EBITA                                               26,499         27,718         29,841
 Total assets                                        58,130         52,789         41,748
 Capital expenditures                                 3,455          2,504          3,029

Discontinued operations:
 Net assets held for sale                        $   99,244       $ 72,601          N/A
 Total assets                                         N/A             N/A        $ 93,753
 Capital expenditures                                 N/A             N/A           2,967

Corporate:
 Depreciation and amortization                   $       91       $     95       $     93
 Loss before interest, taxes and
  amortization                                       (5,255)        (4,941)        (6,638)
 Total assets                                        76,496        110,110        141,150
 Capital expenditures                                   222             31            180

Total Company:
 Net sales                                       $1,167,815       $453,239       $329,532
 Depreciation and amortization                   $  133,640       $ 18,856       $ 11,529
 EBITA                                           $  160,742       $ 85,224       $ 66,003
 Total assets                                    $1,343,140       $414,838       $348,104
 Capital expenditures                            $   39,016       $ 16,164       $ 11,323
</TABLE>

The following are excluded from the calculation of EBITA:

<TABLE>
<S>                                               <C>             <C>           <C>
Amortization of inventory step up                  $ 35,750       $ 4,299        $    ---
Purchased incomplete technology                      56,000           ---             ---
Amortization of unearned compensation                18,266         1,937           1,228
Recapitalization and other
  related costs                                       9,194        27,942          40,767
Gain on sale of subsidiary                              ---           ---         (15,900)
Other                                                 2,380         1,000             ---
                                                 ----------     ---------       ---------
  Total excluded items                             $121,590       $35,178        $ 26,095
                                                 ==========     =========       =========
</TABLE>

  Geographic Information.  Information by geographic areas for the years ended
  March 31, 2001, 2000, and 1999 is summarized below:

<TABLE>
<CAPTION>

                                                 United States    Outside U.S.
                                                      (a)             (b)            Combined
                                                  -----------      ----------       -----------
                                                            (Amounts in thousands)
<S>                                              <C>              <C>               <C>
Sales to unaffiliated customers...............
   2001.......................................       $ 762,433        $405,382       $1,167,815
   2000.......................................         432,216          21,023          453,239
   1999.......................................         310,724          18,808          329,532
</TABLE>


                                      C-34
<PAGE>

<TABLE>
<S>                                                   <C>             <C>            <C>
Income (loss) before taxes from continuing
 operations
   2001.......................................       $(219,466)       $ 49,926       $ (169,540)
   2000.......................................          (7,957)             74           (7,883)
   1999.......................................          (5,398)           (205)          (5,603)
Long-lived assets at
   March 31, 2001.............................       $ 664,693        $ 45,857       $  710,550
   March 31, 2000.............................          85,122             702           85,824
   March 31, 1999.............................          81,662             725           82,387
</TABLE>

(a)  Sales within the United States include export sales of $67,819, $44,798,
     and $44,567 in 2001, 2000, and 1999, respectively.

(b)  Sales outside the United States includes sales from foreign subsidiaries
     to the United States of $28,817 in fiscal 2001.

     Currency gains (losses). Net income in fiscal 2001, 2000, and 1999 included
     currency gains (losses) of approximately ($5.5) million, $54,500, and
     $9,800, respectively.


R.   SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF ACTERNA CORPORATION AND
     ACTERNA LLC

     In connection with the Recapitalization and related transactions, Acterna
     LLC (formerly known as Telecommunications Techniques Co., LLC), Acterna
     Corporation's wholly owned subsidiary ("Acterna LLC"), became the primary
     obligor (and Acterna Corporation, a guarantor) with respect to indebtedness
     of Acterna Corporation, including the 9 3/4% Senior Subordinated Notes due
     2008 (the "Senior Subordinated Notes").

     Acterna Corporation has fully and unconditionally guaranteed the Senior
     Subordinated Notes. Acterna Corporation, however, is a holding company with
     no independent operations and no significant assets other than its
     membership interest in Acterna LLC. Certain other subsidiaries of the
     Company are not guarantors of the Senior Subordinated Notes. The condensed
     consolidating financial statements presented herein include the statement
     of operations, balance sheets, and statements of cash flows without
     additional disclosure as the Company has determined that the additional
     disclosure is not material to investors.


                                      C-35
<PAGE>

                              ACTERNA CORPORATION
          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                 March 31, 2001
<TABLE>
<CAPTION>

                                                        Acterna      Acterna    Non-Guarantor                    Total
                                                          Corp         LLC       Subsidiaries   Elimination  Consolidated
                                                       ---------    ---------   -----------       --------   ------------
                                                                                (In thousands)
<S>                                                    <C>         <C>          <C>             <C>          <C>
Net sales                                              $     ---    $ 418,232       $ 749,583                  $1,167,815
Cost of sales                                                ---      138,675         329,867           ---       468,542
                                                       ---------   ----------      ----------     ---------    ----------
Gross profit                                                 ---      279,557         419,716           ---       699,273
Selling, general and administrative expense                  ---      221,812         217,592           ---       439,404
Product development expense                                  ---       51,838          98,223           ---       150,061
Recapitalization and other related costs                     ---        9,194             ---           ---         9,194
Purchase incomplete technology                               ---          ---          56,000           ---        56,000
Amortization of intangibles                                               ---         109,788           ---       109,788
                                                       ---------   ----------      ----------     ---------    ----------
   Operating income                                          ---       (3,287)        (61,887)          ---       (65,174)

Interest expense                                             ---      (90,003)        (12,063)          ---      (102,066)
Interest income                                              ---        1,742           1,413           ---         3,155
Intercompany income (expense)                                ---       19,481         (19,481)          ---           ---
Other income (expense), net                                  ---          284          (5,739)          ---        (5,455)
                                                       ---------   ----------      ----------     ---------    ----------
Income (loss) from continuing operations
   before income taxes                                       ---      (71,783)        (97,757)          ---      (169,540)

Provision (benefit) for income taxes                         ---      (21,293)         12,911           ---        (8,382)
                                                       ---------   ----------      ----------     ---------    ----------
Income (loss) from continuing operations                     ---      (50,490)       (110,668)          ---      (161,158)

Equity income (loss)                                    (171,817)    (110,668)            ---       282,485           ---
Extraordinary item                                           ---      (10,659)            ---           ---       (10,659)
                                                       ---------   ----------      ----------     ---------    ----------
Net income                                             $(171,817)   $(171,817)      $(110,668)     $282,485    $ (171,817)
                                                       =========   ==========      ==========     =========    ==========
</TABLE>


                                      C-36
<PAGE>

                              ACTERNA CORPORATION
               SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET
                                 March 31, 2001
<TABLE>
<CAPTION>
                                                        Acterna       Acterna     Non-Guarantor                      Total
ASSETS                                                   Corp           LLC       Subsidiaries    Elimination     Consolidated
                                                       ---------     ---------    -------------   -----------     ------------
                                                                               (In thousands)
<S>                                                    <C>           <C>          <C>             <C>             <C>
Current assets:
   Cash and cash equivalents                           $     ---     $  22,179       $  39,707     $     ---       $   61,886
   Accounts receivable, net                                  ---        67,637         147,430           ---          215,067
   Inventory                                                 ---        28,053         105,334           ---          133,387
   Other current assets                                      ---        38,799          35,789           ---           74,588
                                                       ---------      --------      ----------     ---------       ----------
      Total current assets                                   ---       156,668         328,260           ---          484,928
                                                       ---------      --------      ----------     ---------       ----------
Property and equipment, net                                  ---        26,641          90,246           ---          116,887
Investments in and advances to
  consolidated subsidiaries                               13,255       259,637        (547,301)      274,409              ---
Intangible assets, net                                       ---           ---         593,663           ---          593,663
Net assets of discontinued operations                        ---           ---          99,244           ---           99,244
Other                                                        ---        28,166          20,252           ---           48,418
                                                       ---------      --------      ----------     ---------       ----------
                                                       $  13,255     $ 471,112       $ 584,364     $ 274,409       $1,343,140
                                                       =========     =========      ==========     =========       ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
   Notes payable and current portion of debt           $     ---     $  16,000       $  17,167     $     ---       $   33,167
   Accounts payable                                          ---        31,623          65,401           ---           97,024
   Accrued expenses                                          ---        53,331         123,459           ---          176,790
                                                       ---------      --------      ----------     ---------       ----------
      Total current liabilities                              ---       100,954         206,027           ---          306,981

Long-term debt                                               ---       875,100         181,283           ---        1,056,383
Deferred income taxes                                        ---       (77,765)         80,680           ---            2,915
Deferred compensation                                        ---        10,624          47,214           ---           57,838
Stockholders' deficit:
   Common stock                                            1,910         1,221          17,595       (18,816)           1,910
   Additional paid-in capital                            801,080       418,845         171,408      (590,253)         801,080
   Accumulated deficit                                  (789,735)     (765,953)       (123,536)      883,478         (795,746)
   Unearned compensation                                     ---       (90,986)            ---           ---          (90,986)
   Other comprehensive loss                                  ---          (928)          3,693                          2,765
                                                       ---------      --------      ----------     ---------       ----------
      Total stockholders' deficit                         13,255      (437,801)         69,160       274,409          (80,977)
                                                       ---------      --------      ----------     ---------       ----------
                                                       $  13,255     $ 471,112       $ 584,364     $ 274,409       $1,343,140
                                                       =========     =========      ==========     =========       ==========
</TABLE>


                                      C-37
<PAGE>

                              ACTERNA CORPORATION
        SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (a)
                   For The Twelve Months Ended March 31, 2001
<TABLE>
<CAPTION>
                                                      Acterna         Acterna       Non-Guarantor                       Total
                                                        Corp            LLC         Subsidiaries      Elimination    Consolidated
                                                      -------         -------       -------------      --------      ------------
                                                                                    (In thousands)
<S>                                                <C>             <C>             <C>              <C>            <C>
Operating activities:
   Net income (loss) from operations                   $(171,817)      $(171,817)       $(132,846)       $ 304,663       $(171,817)
   Adjustment for noncash items included
    in net income:
      Depreciation                                           ---          21,421            2,431              ---          23,852
      Amortization of intangibles                            ---         107,942            1,846              ---         109,788
      Amortization of inventory step-up                      ---          35,750              ---              ---          35,750
      Amortization of unearned compensation                  ---          17,012            1,254              ---          18,266
      Amortization of deferred debt
       issuance costs                                        ---           3,974              ---              ---           3,974
      Writeoff of deferred debt issuance costs               ---          10,019              ---              ---          10,019
      Purchased incomplete technology                        ---          56,000              ---              ---          56,000
      Recapitalization and other related costs               ---           9,194              ---              ---           9,194
      Tax benefit from stock option exercise                 ---          21,319              ---              ---          21,319
      Other                                                  ---              45            2,002              ---           2,047
      Change in deferred income taxes                        ---         (40,452)           9,143              ---         (31,309)
   Changes in operating assets and liabilities,
      net of effects of purchase acquisitions
      and divestitures                                       ---         (19,672)         (48,041)             ---         (67,713)
   Changes in intercompany                               171,817         (61,592)         194,438         (304,663)            ---
                                                       ---------       ---------        ---------        ---------       ---------
   Net cash flows provided by operating activities           ---         (10,857)          30,227              ---          19,370

Investing activities:
   Purchases of property and equipment                       ---         (35,560)         (10,345)             ---         (45,905)
   Proceeds from sale of property and equipment              ---                            2,433              ---           2,433
   Proceeds from sales of businesses                         ---           6,381              ---              ---           6,381
   Businesses acquired in purchase transactions,
      net of cash and noncash items                          ---        (422,137)             ---              ---        (422,137)
   Other                                                     ---            (389)          (4,474)             ---          (4,863)
                                                       ---------       ---------        ---------        ---------       ---------
   Net cash flows provided by (used in)
     investing activities                                    ---        (451,705)         (12,386)             ---        (464,091)

Financing activities:
   Borrowings under revolving credit
     facility, net                                           ---         108,000              ---              ---         108,000
   Borrowings of term loan debt, net                         ---         670,622              ---              ---         670,622
   Borrowings of notes payable and other debt                ---          31,858             (123)             ---          31,735
   Repayment of debt under old Senior Secured
      Credit Facility                                        ---        (304,861)             ---              ---        (304,861)
   Repayment of WWG term debt                                ---        (118,594)             ---              ---        (118,594)
   Redemption of WWG bonds                                   ---         (94,148)             ---              ---         (94,148)
   Financing fees                                            ---         (18,519)             ---              ---         (18,519)
   Proceeds from issuance of common stock, net of
      expenses                                               ---         200,404                1              ---         200,405
                                                        --------        --------       ----------        ---------      ----------
   Net cash flows used in financing                          ---         474,762             (122)             ---         474,640
    activities

Effect of exchange rate on cash                              ---          (9,380)           6,745              ---          (2,635)
                                                       ---------        --------       ----------        ---------      ----------
Increase (decrease) in cash and cash equivalents             ---           2,820           24,464              ---          27,284
Cash and cash equivalents at beginning of year               ---          19,359           16,410              ---          35,769
                                                       ---------        --------       ----------        ---------      ----------
Cash and cash equivalents at end of year               $     ---       $  22,179        $  40,874              ---       $  63,053
                                                       =========        ========       ==========        =========      ==========
</TABLE>

(a) Has not been restated for discontinued operations.


                                      C-38
<PAGE>

                              ACTERNA CORPORATION
          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                   For The Twelve Months Ended March 31, 2000
<TABLE>
<CAPTION>
                                            Acterna         Acterna        Non-Guarantor                          Total
                                             Corp            LLC          Subsidiaries       Elimination      Consolidated
                                          ---------       ---------       -------------      -----------      ------------
                                                                          (In thousands)
<S>                                      <C>           <C>              <C>                <C>              <C>
Net sales                                   $     ---       $ 306,504          $ 146,735        $     ---         $ 453,239
Cost of sales                                     ---         104,805             52,285              ---           157,090
                                            ---------       ---------          ---------        ---------         ---------
Gross profit                                      ---         201,699             94,450              ---           296,149

Selling, general and administrative
 expense                                          ---         106,982             49,517              ---           156,499
Product development expense                       ---          43,497             17,675              ---            61,172
Recapitalization and other related
 costs                                            ---          27,543                399              ---            27,942
Amortization of intangibles                       ---           1,847              6,942              ---             8,789
                                            ---------       ---------          ---------        ---------         ---------
   Operating income                               ---          21,830             19,917              ---            41,747

Interest expense                                  ---         (51,899)               (17)             ---           (51,916)
Interest income                                   ---           1,537                817              ---             2,354
Intercompany interest income (expense)            ---             477               (477)             ---               ---
Other income (expense), net                       ---            (972)               904              ---               (68)
                                            ---------       ---------          ---------        ---------         ---------
Income (loss) from continuing
 operations before income taxes                   ---         (29,027)            21,144              ---            (7,883)

Provision (benefit) for income taxes              ---         (10,329)             9,160              ---            (1,169)
                                            ---------       ---------          ---------        ---------         ---------
Income (loss) from continuing                     ---         (18,698)            11,984              ---            (6,714)
 operations

Equity income (loss)                            6,012          24,710                ---          (30,722)              ---

Discontinued operations                           ---             ---             12,726              ---            12,726
                                            ---------       ---------          ---------        ---------         ---------
Net income (loss)                           $   6,012       $   6,012          $  24,710        $ (30,722)        $   6,012
                                            =========       =========          =========        =========         =========
</TABLE>


                                      C-39
<PAGE>

                              ACTERNA CORPORATION
               SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET
                                 March 31, 2000

<TABLE>
<CAPTION>
                                    Acterna         Acterna       Non-Guarantor                           Total
                                      Corp            LLC         Subsidiaries       Elimination      Consolidated
                                    --------       ---------      -------------      -----------      ------------
ASSETS                                                            (In thousands)
<S>                              <C>             <C>            <C>                <C>              <C>
Current assets:
   Cash and cash equivalents         $     ---      $  18,645          $  15,194        $     ---          $  33,839
   Accounts receivable, net                ---         49,840             28,396              ---             78,236
   Inventory                               ---         16,919             13,333              ---             30,252
   Other current assets                    ---         33,072              4,808              ---             37,880
                                     ---------      ---------          ---------        ---------          ---------
      Total current assets                 ---        118,476             61,731              ---            180,207

Property and equipment, net                ---         18,151              9,165              ---             27,316
Investments in and advances to
   consolidated subsidiaries          (271,820)       294,569              7,992          (30,741)               ---
Intangible assets, net                     ---            ---             58,508              ---             58,508
Net assets of discontinued
   operations                              ---            ---             72,601              ---             72,601
Other                                      ---         55,696             20,510              ---             76,206
                                     ---------      ---------          ---------        ---------          ---------
                                     $(271,820)     $ 486,892          $ 230,507        $ (30,741)         $ 414,838
                                     =========      =========          =========        =========          =========

LIABILITIES AND STOCKHOLDERS'
 DEFICIT
Current liabilities:
   Notes payable and current
    portion of long-term debt        $     ---      $   7,625          $      21         $    ---          $   7,646
   Accounts payable                        ---         26,990             11,384              ---             38,374
   Accrued expenses                        ---         59,017             22,908              ---             81,925
                                     ---------      ---------          ---------         --------          ---------
      Total current liabilities            ---         93,632             34,313              ---            127,945

Long-term debt                             ---        572,236                 52              ---            572,288
Deferred compensation                      ---         11,280                ---              ---             11,280
Stockholders' deficit:
   Common stock                          1,225          1,221             17,595          (18,816)             1,225
   Additional paid-in capital          344,873        418,845            171,408         (590,253)           344,873
   Accumulated deficit                (617,918)      (594,136)             9,797          578,328           (623,929)
   Unearned compensation                   ---        (16,965)               ---              ---            (16,965)
   Dividends                               ---            108               (108)             ---                ---
      Other comprehensive loss             ---            671             (2,550)             ---             (1,879)
                                     ---------      ---------          ---------        ---------          ---------
      Total stockholders' deficit     (271,820)      (190,256)           196,142          (30,741)          (296,675)
                                     ---------      ---------          ---------        ---------          ---------
                                     $(271,820)     $ 486,892          $ 230,507        $ (30,741)         $ 414,838
                                     =========      =========          =========        =========          =========
</TABLE>


                                      C-40
<PAGE>

                              ACTERNA CORPORATION
          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                For The Twelve Months Ended March 31, 2000 (a)


<TABLE>
<CAPTION>
                                                       Acterna       Acterna       Non-Guarantor                          Total
                                                         Corp          LLC         Subsidiaries       Elimination      Consolidated
                                                       --------     ---------      -------------      -----------      ------------
                                                                                   (In thousands)
<S>                                                    <C>          <C>            <C>                <C>              <C>
Operating activities:
   Net income from operations                          $  6,012     $   6,012        $   24,710       $  (30,722)      $     6,012
   Adjustment for noncash items included
      in net income:
      Depreciation                                          ---         6,543             6,539              ---            13,082
      Amortization of intangibles                           ---         7,645             4,682              ---            12,327
      Recapitalization and other related costs              ---        12,327               ---              ---            12,327
      Amortization of unearned compensation                 ---         2,419               ---              ---             2,419
      Amortization of deferred debt issuance costs          ---         3,232               ---              ---             3,232
      Change in net deferred income tax asset               ---        (2,840)              ---              ---            (2,840)
      Other                                                 ---         1,461                56              ---             1,517
   Changes in operating assets and liabilities,
     net of effects of purchase acquisitions
     and divestitures                                       ---        (9,474)           18,808              ---             9,334
   Changes in intercompany                               (6,012)       19,676           (44,386)          30,722               ---
                                                       --------     ---------        ----------       ----------       -----------
   Net cash flows provided by operating activities          ---        47,001            10,409              ---            57,410

Investing activities:
   Purchases of property and equipment                      ---       (11,962)           (9,897)             ---           (21,859)
   Businesses acquired in purchase transactions,
      net of cash acquired                                  ---      (113,227)              ---              ---          (113,227)
   Other                                                    ---        (5,643)           (1,522)             ---            (7,165)
                                                       --------     ---------        ----------       ----------       -----------
   Net cash flows provided by (used in) investing
    activities                                              ---      (130,832)          (11,419)             ---          (142,251)

Financing activities:
   Borrowings (repayments) under revolving
    credit facility, net                                    ---        70,000               ---              ---            70,000
   Repayment of term loan debt                              ---       (17,139)              ---              ---           (17,139)
   Repayment of capital lease obligations                   ---           ---              (212)             ---              (212)
   Proceeds from issuance of common stock and
    stock options                                           ---         4,736               ---              ---             4,736
   Redemption of stock options                              ---        (6,980)              ---              ---            (6,980)
                                                       --------     ---------        ----------       ----------       -----------
   Net cash flows used in financing activities              ---        50,617              (212)             ---            50,405

Effect of exchange rate on cash                             ---            92              (249)             ---              (157)
                                                       --------     ---------        ----------       ----------       -----------
Increase (decrease) in cash and cash equivalents            ---       (33,122)           (1,471)             ---           (34,593)

Cash and cash equivalents at beginning of year              ---        52,481            17,881              ---            70,362
                                                       --------     ---------        ----------       ----------       -----------
Cash and cash equivalents at end of year               $    ---     $  19,359        $   16,410       $      ---       $    35,769
                                                       ========     =========        ==========       ==========       ===========
</TABLE>

(a) Has not been restated for discontinued operations.



                                      C-41
<PAGE>

                              ACTERNA CORPORATION
          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                  For The Twelve Months Ended March 31, 1999


<TABLE>
<CAPTION>
                                                    Acterna        Acterna       Non-Guarantor                        Total
                                                      Corp           LLC         Subsidiaries       Elimination    Consolidated
                                                    -------       --------       -------------      -----------    ------------
                                                                                 (In thousands)
<S>                                                <C>            <C>            <C>                <C>            <C>
Net sales                                          $    ---       $221,172          $108,360         $     ---         $329,532
Cost of sales                                           ---         73,284            35,334                            108,618
                                                   --------       --------         ---------         ---------         --------
Gross profit                                            ---        147,888            73,026               ---          220,914

Selling, general and administrative expense             ---         79,927            33,542               ---          113,469
Product development expense                             ---         32,613             9,859               ---           42,472
Recapitalization and other related costs                ---         38,656             2,111               ---           40,767
Amortization of intangibles                             ---          2,117               609               ---            2,726
                                                   --------       --------         ---------         ---------         --------
   Operating income                                     ---         (5,425)           26,905               ---           21,480

Interest expense                                        ---        (46,152)              (26)              ---          (46,178)
Interest income                                         ---          1,649             1,743               ---            3,392
Other income (expense), net                             ---          1,962            13,741               ---           15,703
                                                   --------       --------         ---------         ---------         --------
Income (loss) from continuing operations
 before income taxes                                    ---        (47,966)           42,363               ---           (5,603)

Provision (benefit) for income taxes                    ---        (12,533)           12,464               ---              (69)
                                                   --------       --------         ---------         ---------         --------
Income (loss) from continuing operations                ---        (35,433)           29,899               ---           (5,534)

Equity income                                         6,445         41,878               ---           (48,323)             ---

Discontinued operations                                 ---            ---            11,979               ---           11,979
                                                   --------       --------         ---------         ---------         --------
Net income (loss)                                  $  6,445       $  6,445         $  41,878         $ (48,323)        $  6,445
                                                   ========       ========         =========         =========         ========
</TABLE>

                                     C-42

<PAGE>

                              ACTERNA CORPORATION
        SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (a)
                  For The Twelve Months Ended March 31, 1999

<TABLE>
<CAPTION>

                                                    Acterna         Acterna        Non-Guarantor                           Total
                                                     Corp             LLC           Subsidiaries      Elimination      Consolidated
                                                   --------        ---------       -------------      -----------      ------------
                                                                                     (In thousands)
<S>                                                <C>             <C>             <C>                <C>              <C>
Operating activities:
   Net income from operations                      $  6,445         $   6,445        $   41,878         $ (48,323)       $   6,445
   Adjustment for noncash items included
      in net income:
      Depreciation                                      ---             6,532             5,209               ---           11,741
      Amortization of intangibles                       ---             2,144             4,084               ---            6,228
      Gain on sale of subsidiary                        ---               ---           (15,900)              ---          (15,900)
      Recapitalization and other related costs          ---            14,640               ---               ---           14,640
      Amortization of unearned compensation             ---             1,519               ---               ---            1,519
      Amortization of deferred debt
        issuance costs                                  ---             2,693               ---               ---            2,693
      Change in net deferred income tax asset           ---           (12,289)              ---               ---          (12,289)
      Other                                             ---               620                (8)              ---              612
   Changes in operating assets and liabilities,
      net of effects of purchase acquisitions
      and divestitures                                  ---            19,055            32,926               ---           51,981
   Changes in intercompany                           (6,445)           24,591           (66,469)           48,323              ---
                                                   --------         ---------        ----------         ---------        ---------
   Net cash flows provided by
      operating activities                              ---            65,950             1,720               ---           67,670
                                                   --------         ---------        ----------         ---------        ---------
Investing activities:
   Purchases of property and equipment                  ---            (5,192)           (6,131)              ---          (11,323)
   Proceeds from sales of businesses                    ---            21,000               ---               ---           21,000
   Businesses acquired in purchase
      transactions, net of cash acquired                ---           (21,365)              ---               ---          (21,365)
   Incentive earnout related to the
      purchase of Advent                                ---               ---            (3,845)              ---           (3,845)
   Other                                                ---            (4,513)              (33)              ---           (4,546)
                                                   --------         ---------        ----------         ---------        ---------
   Net cash flows provided by (used in)
     investing activities                               ---           (10,070)          (10,009)              ---          (20,079)
                                                   --------         ---------        ----------         ---------        ---------
Financing activities:
 Borrowings of term loan debt,
   net of repayments                                    ---           527,000               ---               ---          527,000
   Repayment of notes payable                           ---               ---            (2,192)              ---           (2,192)
   Repayment of capital lease obligations               ---               ---              (159)              ---             (159)
   Financing fees                                       ---           (38,631)              ---               ---          (38,631)
   Proceeds from issuance of common stock and
     stock options                                      ---           278,835               ---               ---          278,835
   Purchases of treasury stock, common stock and
     stock options                                      ---          (806,508)              ---               ---         (806,508)
                                                   --------         ---------        ----------         ---------        ---------
   Net cash flows used in financing activities          ---           (39,304)           (2,351)              ---          (41,655)

Effect of exchange rate on cash                         ---               717            (1,195)              ---             (478)
                                                   --------         ---------        ----------         ---------        ---------
Increase (decrease) in cash and cash equivalents        ---            17,293           (11,835)              ---            5,458

Cash and cash equivalents at beginning of year          ---            35,186            29,718               ---           64,904
                                                   --------         ---------        ----------         ---------        ---------
Cash and cash equivalents at end of year           $                $  52,479        $   17,883         $     ---        $  70,362
                                                   ========         =========        ==========         =========        =========
</TABLE>

(a) Has not been restated for discontinued operations.

                                     C-43
<PAGE>

SUMMARY OF OPERATIONS BY QUARTER (UNAUDITED)

<TABLE>
<CAPTION>
                                                           FY 2001
                                                           -------
                                          (Amounts in thousands except per share data)
                              First         Second          Third           Fourth           Year
                              -----         -------         -----           ------           ----
<S>                        <C>           <C>            <C>             <C>             <C>
Net sales                     $208,171       $305,210        $324,104        $330,330       $1,167,815
Gross profit                   118,563        164,160         205,179         211,371          699,273
Net income (loss) from
  continuing operations       $(71,735)      $(50,389)       $(18,306)       $(20,728)      $ (161,158)
Net income (loss)              (82,394)       (50,389)        (18,306)        (20,728)        (171,817)
Income (loss) per common
  share - basic and
   diluted:
   Continuing operations      $  (0.43)      $  (0.27)       $  (0.10)       $  (0.11)      $    (0.87)
   Extraordinary (loss)          (0.07)           ---             ---             ---            (0.06)

</TABLE>

<TABLE>
<CAPTION>
                                                               FY 2000
                                                               -------
                                 First         Second           Third          Fourth             Year
                                 -----         ------           -----          ------             ----
<S>                           <C>            <C>             <C>             <C>            <C>
Net sales                     $ 90,794       $103,789        $122,225        $136,431       $  453,239
Gross profit                    60,080         69,730          81,409          84,930          296,149
Net income (loss) from
  continuing operations       $ (6,066)      $  5,642        $  3,934        $(10,224)      $   (6,714)
Net income (loss)                2,551          9,566           4,754         (10,859)           6,012
Income (loss) per common
  share - basic:
   Continuing operations      $  (0.04)      $   0.04        $   0.03        $  (0.07)      $    (0.05)
   Net income (loss)              0.02           0.06            0.03           (0.07)            0.04

Income (loss) per common
  share - diluted:
   Continuing operations      $  (0.04)      $   0.04        $   0.03        $  (0.07)      $    (0.05)
   Net income (loss)              0.02           0.06            0.03           (0.07)            0.04
</TABLE>

                                     C-44
<PAGE>

                                                                      Appendix D


   EXHIBIT INDEX

   Exhibit
   No.

   2.1  Agreement and Plan of Merger, dated as of December 20, 1997, by and
        between Acterna Corporation and CDRD Merger Corporation. (1)
   2.2  Agreement and Plan of Merger, dated as of September 7, 1999, by and
        among Acterna Corporation, Acterna Acquisition Corporation and Applied
        Digital Access, Inc. (2)
   2.3  Agreement and Plan of Merger, dated as of February 14, 2000, by and
        among Acterna Corporation, DWW Acquisition Corporation and Wavetek
        Wandel Goltermann, Inc. (3)
   2.4  Agreement for the Sale and Purchase of Shares in WPI Husky Technology
        Ltd., dated February 23, 2000, by and among Acterna Nominees Limited,
        WPI Group (UK), and WPI Group, Inc.(5)
   3.1  Amended and Restated Certificate of Incorporation of Acterna
        Corporation.(5)
   3.2  Amended and Restated By-Laws of Acterna Corporation. (4)
   4.1  Indenture, dated as of May 21, 1998, among Acterna Corporation, TTC
        Merger Co. LLC (now known as Acterna LLC) and State Street Bank and
        Trust Company, as trustee. (6)
   4.2  Form of 9 3/4% Senior Subordinated Note due 2008 (6).
   4.3  First Supplemental Indenture, dated as of May 21, 1998, among Acterna
        Corporation, Telecommunications Techniques Co., LLC (now known as
        Acterna LLC) and State Street Bank and Trust Company, as trustee. (6)
   4.4  Registration Rights Agreement, dated May 21, 1998, by and among Acterna
        Corporation, Telecommunications Techniques Co., LLC (now known as
        Acterna LLC), Credit Suisse First Boston Corporation and J.P. Morgan
        Securities Inc. (6)
   4.5  Registration Rights Agreement, dated as of May 21, 1998, among Acterna
        Corporation, Clayton, Dubilier & Rice Fund V Limited Partnership, Mr.
        John F. Reno, The John F. Reno 1997 Qualified Annuity Trust, under Trust
        Agreement, dated as of the 28th day of November, 1997, between John F.
        Reno as Grantor and John F. Reno and John D. Hamilton, Jr. as Trustees,
        and The Suzanne D. Reno 1997 Qualified Annuity Trust, under Trust
        Agreement, dated as of the 28th day of November, 1997, between Suzanne
        D. Reno as Grantor and John F. Reno and John D. Hamilton, Jr. as
        Trustees. (6)
   4.6  Amendment No. 1, dated as of May 23, 2000, among Acterna Corporation
        ("Acterna"), Clayton, Dubilier & Rice Fund V Limited Partnership ("Fund
        V") and Clayton, Dubilier & Rice Fund VI Limited Partnership, to the
        Registration Rights Agreement, dated as of May 21, 1998, among Acterna,
        Fund V and the other parties thereto.(5)

                                      D-1
<PAGE>

   4.7    Form of Piggyback Registration Rights Agreement, dated as of February
          29, 2000, by and among Wavetek Wandel Goltermann, Inc. ("WWG"),
          Acterna Corporation and each stockholder of WWG party thereto.(5)
   4.8    Form of Subscription Warrant to Subscribe for Shares of Acterna
          Corporation Common Stock. (7)
   10.1   Credit Agreement, dated May 23, 2000, among Acterna LLC, Wavetek
          Wandel Goltermann GmbH and Acterna Subworld Holdings GmbH, the lenders
          named therein, Morgan Guaranty and Trust Company of New York ("Morgan
          Guaranty") as administrative agent, Morgan Guaranty as German Term
          Loan Servicing Bank, Credit Suisse First Boston as syndication agent
          and The Chase Manhattan Bank and Bankers Trust Company as co-
          documentation agents.(5)
   10.2   Guarantee and Collateral Agreement, dated as of May 23, 2000, among
          Acterna LLC, certain of its subsidiaries and Morgan Guaranty and Trust
          Company of New York as administrative agent.(5)
   10.3   Indemnification Agreement, dated as of May 21, 1998, by and among
          Acterna Corporation, Telecommunications Techniques Co., LLC (now known
          as Acterna LLC), Clayton, Dubilier & Rice, Inc. and Clayton, Dubilier
          & Rice Fund V Limited Partnership. (6)
   10.4   Indemnification Agreement, dated as of May 23, 2000, by and among
          Acterna Corporation, Clayton, Dubilier & Rice Fund VI Limited
          Partnership and Clayton, Dubilier & Rice, Inc.(5)
   10.5   Amended and Restated Consulting Agreement, dated as of January 1,
          2001, by and among Acterna Corporation, Acterna LLC and Clayton,
          Dubilier & Rice, Inc.
   10.6   Agreement, dated as of May 23, 2000, by and between Clayton, Dubilier
          & Rice, Inc. and Acterna Corporation.(5)
   10.7   Tax Sharing Agreement, dated as of May 21, 1998, by and between
          Acterna Corporation and Telecommunications Techniques Co., LLC (now
          known as Acterna LLC). (6)
   10.8   Form of Letter Agreement by and between Acterna Corporation
          ("Acterna") and certain officers of Acterna. (8)
   10.9   Form of Management Equity Agreement among Acterna Corporation,
          Clayton, Dubilier & Rice Fund V Limited Partnership and Messrs. Kline
          and Peeler. (8)
   10.10  Form of Management Equity Agreement among Acterna Corporation
          ("Acterna"), Clayton, Dubilier & Rice Fund V Limited Partnership and
          certain officers of Acterna. (8)
   10.11  Amended and Restated Employment Agreement, entered into on November 1,
          1998, by and between Acterna Corporation and Allan M. Kline. (9)
   10.12  Amended and Restated Employment Agreement, entered into on November 1,
          1998, by and between Acterna Corporation and John R. Peeler. (9)
   10.13  Form of Nondisclosure, Noncompetition and Nonsolicitation Agreement by
          and between Acterna Corporation ("Acterna") and certain executives of
          Acterna. (8)

                                      D-2
<PAGE>

 10.14  Acterna Corporation 1992 Stock Option Plan. (6)
 10.15  Acterna Corporation Amended and Restated 1994 Stock Option and Incentive
        Plan.(10)
 10.16  Acterna Corporation Non-Employee Directors Stock Incentive Plan. (10)
 10.17  Acterna Corporation Directors Stock Purchase Plan. (4)
 10.18  Form of Non-Employee Director Stock Subscription Agreement between
        Acterna Corporation and non-employee directors of Acterna. (11)
 10.19  Loanout Agreement, dated as of May 19, 1999, by and among Acterna
        Corporation, Acterna LLC and Clayton, Dubilier & Rice, Inc. (12)
 21     Subsidiaries of Acterna Corporation.
 23     Consent of Independent Accountants.

(1)  Incorporated by reference to Acterna Corporation's Report on Form 8-K
     (File No. 0-7438).
(2)  Incorporated by reference to Acterna Corporation's Schedule 14D-1 (File
     No. 5-44783).
(3)  Incorporated by reference to Acterna Corporation's Report on Form 8-K
     (File No. 1-12657), filed May 31, 2000.
(4)  Incorporated by reference to Acterna Corporation's Form 10-Q for the
     quarter ended September 30, 1999.
(5)  Incorporated by reference to Acterna Corporation's Report on Form 10-K for
     the year ended March 31, 2000 (File No. 0-7438).
(6)  Incorporated by reference to Acterna Corporation's Registration Statement
     on Form S-4 (Registration No. 333-60893).
(7)  Incorporated by reference to Acterna Corporation's Registration Statement
     on Form S-3 (Registration No. 333-35476).
(8)  Incorporated by reference to Acterna Corporation's Registration Statement
     on Form S-4 (File No. 333-44933).
(9)  Incorporated by reference to Acterna Corporation's Form 10-Q for the
     quarter ended December 31, 1998.
(10) Incorporated by reference to Acterna Corporation's Registration Statement
     on Form S-8 (File No. 333-75797).
(11) Incorporated by reference to Acterna Corporation's Form 10-Q for the
     quarter ended December 31, 1999.
(12) Incorporated by reference to Acterna Corporation's Form 10-Q for the
     quarter ended June 30, 1999.

                                      D-3
<PAGE>

Item 14(a) (2)


                                                                     SCHEDULE II

                              ACTERNA CORPORATION

                       VALUATION AND QUALIFYING ACCOUNTS

            For the years ended March 31, 2001, 2000, 1999 and 1998

Reserve for Doubtful Accounts


                                                             (In thousands)
Balance, March 31, 1998                                         $ 1,764

   Additions charged to income                                      483
   Writeoff of uncollectible accounts, net                         (613)
                                                               --------
Balance, March 31, 1999                                           1,634

   Additions charged to income                                      620
   Writeoff of uncollectible accounts, net                          (22)
   Balance acquired by acquisition                                  247
   Adjustment for discontinued operations                          (527)
                                                               --------
Balance, March 31, 2000                                           1,952

   Additions charged to income                                    5,284
   Writeoff of uncollectible accounts, net                       (2,172)
   Balance acquired by acquisition                                3,933
                                                               --------
Balance, March 31, 2001                                         $ 8,997
                                                               ========